But Naimi thinks the latest spike to about $30 per barrel--prompted by an oil workers strike in Venezuela--is too much of a good thing. The Saudis are now calling for production increases of up to 2 million barrels per day to make up for lost Venezuelan crude and cool prices before they damage the world economy. "We start worrying whenever we see prices go above $30 per barrel," says a gulf OPEC delegate. The cartel will meet on Jan. 12 to discuss output.
Despite the current concern over prices, crises such as the Venezuela debacle and the U.S. standoff with Iraq have generally worked to OPEC's benefit of late, firming up otherwise soft markets. But OPEC's run of good fortune may be about to end. Political and economic forces are building that could put downward pressure on prices. Although analysts say prices could soar to over $40 per barrel if production in Venezuela, Iraq, and some other gulf states is hit at the same time, they could eventually swing back to $15. The policy of post-Saddam Iraq, Russia's ambitions, and fissures between gulf Arabs and OPEC's poorer members would all play a role. "These combined pressures make OPEC's current price-defense policy appear untenable," says Raad Alkadiri, an analyst at PFC Energy in Washington.
Take the case of Nigeria and Algeria--both with rickety regimes and growing economic problems that could strain the cartel. To raise revenue, their governments have struck agreements with Western companies that will lead to an additional 1.5 million bbl. in capacity--a 70% increase over their current quotas. Both are pushing OPEC to boost their production ceilings, which could lead to a clash with the Saudis.
Venezuela, meanwhile, could also turn into an OPEC renegade. The government is losing billions of dollars in the oil workers' strike, aimed at toppling President Hugo Chavez. Either he or a new regime, if he is ousted, may want to produce flat-out once the strike is over. Finally, output from non-OPEC producers such as Russia, Kazakhstan, and various West African countries is likely to grow by 1 million bbl.-per-day annually for the next few years, says PFC Energy. That's almost as high as expected growth in world demand.
But the wild card is Iraq. Saddam's pariah status has helped OPEC's unity by preventing the development of Iraq's oil resources, second only to Saudi Arabia's. Few analysts, though, believe a new regime in need of funds will stick to Iraq's 3 million bbl.-per-day OPEC quota. "Iraq will go ahead in expanding capacity and production irrespective of OPEC," says Fadhil Chalabi, a former Iraqi oil official who is now executive director of London's Center for Global Energy Studies.
The Saudis are watching developments closely. Analysts think Naimi, along with his counterparts in Kuwait and the United Arab Emirates, may open the taps to punish Russia and other producers encroaching on the Saudi market share. Such a move could come when the U.N. lifts sanctions on Iraq. "If there is a price war, it will not stay for more than a year," says the gulf OPEC official. "The marginal fields will disappear, and investment in new fields will go down sharply." One way or another, OPEC is entering a tumultuous phase. By Stanley Reed in London EDITED BY Edited by Rose Brady