Angola, Sudan could hamper OPEC cohesion
Dec 5, 2006 (HOUSTON) — The Organization of Petroleum Exporting Countries will find it difficult to restrain production if it accepts fast-growing Angola and Sudan into the cartel, BP PLC (BP) Deputy Chief Economist Christof Ruhl said Tuesday.
“Major investments” occurring in Angola and Sudan’s upstream sectors will “make coordination more difficult,” especially at a time when the cartel seeks to curb output, Ruhl told Dow Jones Newswires on the sidelines of a Deloitte conference.
OPEC Secretary-General Mohamed Barkindo last week confirmed Angola is poised to join the oil-producer group and Sudan was moving closer, but added there was no formal time frame for the two countries to join.
OPEC ministers have been increasingly hawkish in comments predicting possible cuts ahead of the organization’s Nigeria meeting on Dec. 14. Saudi minister Ali al-Naimi has recently said that inventory levels were too high.
“The market is significantly out of balance, and 100 million barrels must be removed from inventories,” Naimi said.
Ruhl said that inventory levels have reached historical heights because there’s been an “unusual” contango in the past two years. A contango occurs when the price of futures exceeds the price of oil currently for sale, motivating traders to build inventories.
OPEC’s cuts, however, have caused stock levels in the U.S. to begin decreasing, thereby leading to higher near-term pricing and reducing contango, Ruhl said.
Ultimately, he said the market will determine what level of inventories can be sustained long-term.
(Dow Jones)