Tuesday, October 30, 2007

Oil Prices: Don't Blame OPEC

Time magazine reports:

Commodity speculators are exploiting geopolitical tensions to put a "fear factor premium" on oil prices, says Qatar's Energy and Oil Minister Abdulla Bin Hamad al-Attiya in an interview with TIME. The blame for high prices — a record $93.53 a barrel on Monday — should not fall on petroleum producers, he says. "How do you blame us?" asked Attiya, who also serves as deputy prime minister of Qatar, a small country of nearly one million people whose per capita income of $66,000 is the world's fifth-highest. "I am an oil producer and cannot tell you the oil price. I have to check with Reuters or Platts to tell you my oil price. I cannot fix my oil price. The international market will tell me."

Attiya says that rising prices are the end result of crises in places like Iraq, Iran, Venezuela and Nigeria, which "create more fears, and speculators are very smart. They jump into the market and take this factor and create it as fear. They try to frighten the world. 'Oh, maybe the oil will be disappear. Oh, maybe there will be a war.' But with all the fears of the world, still the supply is very efficient."

Attiya told TIME that prices would rise further if the Bush Administration ever carries out a military strike on Iran, his Persian Gulf neighbor. "I hope and am confident that we will not see any war between America and Iran, and that all these negotiations will settle things amicably," Attiya said. But in the event of further conflict in the region, such as a threatened U.S. attack on Iran's nuclear installations, Attiya said, "I think there will be a big jump [in oil prices]." War would cause an actual drop in global oil supplies which, he explained, "will create a panic, a shortage in the market."

But that is only in the event of a real war and a cut-off of Iran's and the region's spigots. Right now, says Attiya, there is no actual shortage of fuel. "Why is the price of oil very high? I can confirm to you that there is no relation [to] demand and supply. We don't believe there is any shortage of supply in the whole world. I never saw a long queue in any gas station in the world. If you take the inventories, they are the highest in five years.
"Our main [objective]," he adds, "is not to have any shortage of supply. This is our job. Back in 1997, the oil price dropped very dramatically in dollars. We never complained. It hurt us very bad. It hurt the industry. The industry also went into bankruptcy. We believed at the time it was market driven."

Speaking in his eighth-floor office with panoramic views of Doha's new skyscrapers and the Gulf waters beyond, Attiya said that the failure of industrialized countries to provide more refining capacity in the world had led to some shortages of usable fuel. But he was adamant that the Organization of the Oil Petroleum Exporting Countries, which will hold a major summit in Riyadh, Saudi Arabia, in mid-November, is not responsible for today's soaring prices.

Local conditions and regulations play their part as well. For example, he says, the high cost of gasoline in Europe is due to the hefty tax imposed by governments on consumers there. "Europeans should complain to their governments," he explained. "In 2004, I received a European minister in my office and he was complaining that we should do something. I joked with him, but it was a serious joke. I told him, 'OK, I have an offer for you. I can give you free oil for 25 years, including transportation, including tax. On one condition: we split the gasoline tax in your country 50-50. He looked at me and said, 'Mr. Minster, let's change the subject.' Europe is making more money than OPEC without putting one dollar in investments."

Attiya, whose government is pouring billions of dollars from energy windfalls into vast infrastructure and education projects, spoke on the eve of the 6th Doha Conference on Natural Gas. He outlined Qatar's phenomenal rise within the global energy industry, which has seen the country become the world's largest supplier of liquefied natural gas as well as remaining a major oil producer. LNG production has gone from zero to 32 million tons annually and is expected to hit 77 million tons by 2010. Qatari oil production, meanwhile, has jumped from 350,000 barrels per day in 1995 to nearly 1 million barrels per day now. Although the fear factor has brought huge revenue windfalls, al-Attiya said, Qatar has no wish for further conflict in the region. "In the more than 70 years [of conflict in the Gulf], war is never the solution," he said. "The whole world and I pray to see that."