OPEC's higher output too small to matter

ENERGY Minister Stuart Young, energy analyst Gregory McGuire and former energy minister Kevin Ramnarine expressed different views on Wednesday about a decision by the Organisation of Petroleum Exporting Countries (OPEC) and its allies to slightly increase its output next month.

A CNN report said OPEC announced it will produce an additional 100,000 barrels of crude oil per day in September. OPEC is currently producing 31.7 million barrels of crude oil per day (bpd).

Young said, "We have been seeing high prices for oil and this in turn leads to high prices for fuel. These affect global supply chains and global inflation."

The current volume of crude oil being traded on the world market is approximately 2.8 billion barrels. Brent and West Texas Intermediate crude oils were trading at US$97.92 and US$91.77 per barrel respectively on Wednesday.

Young observed the latter reflects a pattern seen in recent days where oil prices have been slightly below US$100 per barrel.

"This announcement by OPEC can be expected to affect oil prices, the questions would be to what extent and for how long. The increase of 100,000 bpd is not huge. We are all conscious about global inflation and how it affects us."

With TT's economy being more dependent on natural gas than oil, Young said, "We continue to see high prices for LNG, ammonia, urea, UAN and methanol. So Trinidad and Tobago will continue to derive revenue benefits whilst (gas) prices remain high.”

Natural gas was trading at US$8.14 per mmbtu on Wednesday.

Young said it was too early at this stage to tell whether the proposed increased production by OPEC will affect domestic fuel prices.

“This small increase of production may not have a significant effect on global oil prices, only the passage of time will tell. We will have to see if fuel prices go down."

At a news conference at Piarco International Airport on April 21, the Prime Minister said if international oil prices decrease then domestic fuel prices will decrease.

“Yes, the trigger point will be made known to the population and if the price goes down, the same way we have raised it because of the subsidy, it is reasonable to expect that significantly, the price at the pumps will go down.

"That is something that we will do. Of course, they will say when the price goes up it goes up very quickly but it defies gravity when the price has to go down. These are things the market price will deal with.”

On April 8, Finance Minister Colm Imbert announced an increase in fuel prices effective April 19.

The price of premium gasoline and super gasoline were adjusted by $1 per litre to $6.75 and $5.97, respectively. The price of diesel was adjusted by 50 cents to $3.91 per litre. The price of kerosene was adjusted from $1.50 to $3.50 per litre.

The price of liquefied petroleum gas (LPG) remains fixed at $21 for a 20lb cylinder of cooking gas for domestic customers.

On OPEC's move, McGuire said, "More oil on the market will drive down prices at the pump which would impact positively by lowering the costs of production and transport."

He added, "Removing or taming the cost push factors for Inflation can result in slowing of the inflationary spiral ."

Cost-push inflation occurs when supply costs rise or supply levels fall. Either of these situations will drive up prices as long as demand remains the same.

McGuire said a possible downside to OPEC increasing production next month could be "an uncontrollable collapse of prices in the future as too much oil may be produced."

He was concerned that a collapse in oil prices back to below US$60 per barrel could spell further fiscal pressure for the Government.

Ramnarine said, "The question is why would OPEC agree to increase output by what is a miniscule amount."

He estimated that the 100,000 bpd increase to be approximately 0.1 per cent of global demand.

"This increase is likely snub to the requests by the United States for OPEC to increase its production and thus help combat high oil prices."