CARACAS-Venezuelan President Hugo Chavez says his government is concerned some fellow OPEC member countries are violating their quotas by producing too much oil. Chavez says Venezuelan Oil Minister Rafael Ramirez will bring up those concerns at next week's OPEC meeting in Austria.
Chavez didn't name any countries he thinks are exceeding production quotas. But Saudi Arabia, for one, has been pumping more oil to offset supply losses from Iran. The price of U.S. benchmark crude ended the week at US$84.10 a barrel in New York, near its lowest level since October.
Chavez says OPEC members should maintain what he calls a "fair level" of oil prices. He says that should be about $100 a barrel. Chavez's socialist government relies heavily on the country's oil earnings to pay for public programs. Higher oil production and weakness in economies around the world that are now burning less gasoline and other fuels have helped push down crude prices 14 percent in the last month and 25 percent from a high in February.
"It's a world of terrible news and a huge build (of oil stocks)," says Rich Ilczyszyn, an analyst and founder of the trading firm iiTrader.com. More declines could be on the way. Julian Jessop, Chief Global Economist at Capital Economics, thinks oil prices will end the year "much lower than they are now."
Demand for oil to make fuels for shippers and travelers is down because Europe remains mired in a debt crisis and economic growth in the U.S. and China has slowed. At the same time, oil supply has risen in recent months. Production in Libya, Iraq and the United States is growing. Saudi Arabia has been pumping more oil to offset supply loses from Iran, which is struggling to export crude under tightening Western sanctions.
One of the chief reasons for the recent drop in global oil prices is the change in the growth prospects in China. Judith Dwarkin, Chief Energy Economist at ITG Investment Research, said China is expected to account for half of the overall growth in global oil demand.
But growth in China has been slowing sharply. Investors expect the country will soon reveal that growth continued to slacken in May. If China is not using more oil, global demand won't rise nearly as much as expected - if it rises at all.
AP
