Last week OPEC forged ahead with tighter oil supply curbs, deaf to consumer country complaints about crude prices recently at 13-year highs.
The Organization of the Petroleum Exporting Countries agreed to turn down the taps despite calls from the United States for cheaper fuel.
The Bush administration, in an election year, had pressed OPEC to lift export restrictions to help control prices at the pump and prevent energy inflation slowing economic growth.
Delegates said cartel powerhouse Saudi Arabia led the push for implementing cuts of one million barrels a day or four percent from April 1, as first agreed in Algiers in February.
“The Saudis have gone from being a reliable OPEC price dove to OPEC’s arch price hawk,” said independent energy consultant Mehdi Varzi.
“That’s because of the demands of the Saudi budget. They need higher and higher oil prices every year to meet current expenditure for a larger and larger population.”
The White House stopped short of openly criticizing OPEC but called for adequate supplies and said: “It is important for producers not to take actions that hurt our economy.”
OPEC blames speculative investment funds, now commanding record positions on energy contracts, for this year’s oil price spike.
“We estimate speculative funds have already invested $15 billion in oil futures contracts in New York and London,” said Gary Ross of leading US energy consultancy PIRA Energy.
“This decision is only going to encourage the speculators to stay long on oil markets.”
Oil prices fell sharply after the deal. A big weekly build in US crude inventories led the slide but expectations among traders that OPEC will be slow to enforce its lower quota limits also undermined prices.
Benchmark US crude dumped $1.00 to $35.25 a barrel, down from a recent peak of over $38 on the New York Mercantile Exchange.
Saudi Arabia’s regional Gulf allies Kuwait and the United Arab Emirates had recommended OPEC consider delaying tighter output restrictions to allow oil prices to cool.
The split among OPEC’s core Gulf members raised speculation that the United States is now targeting Kuwait and the UAE, instead of Saudi, for diplomatic efforts aimed at getting lower prices.
Delegates said that to meet Kuwaiti and UAE concerns it was privately acknowledged by Saudi that actual supplies would not be cut much more in April, unless oil prices fall.
Despite a ritual call from ministers for full adherence to quotas, the behind-the-scenes sop to Kuwait and the UAE appears to be a less than rigorous requirement to immediately meet new limits.
Kuwaiti Oil Minister Sheik Ahmad al-Fahd al-Sabah admitted that it would be May before cartel compliance improved.
“This idea of a compromise to get the Kuwaitis on board, meaning not much of a cut will get implemented, is going to cap prices,” said Nauman Barakat of brokers Refco in New York.
Saudi and a few other OPEC countries have already ordered slightly lower April volumes, moving down toward the new combined limit of 23.5 million barrels daily.
But Reuters estimates from a survey of OPEC customers are that actual supplies are likely to drop by only about a third of the planned million barrel a day cut.
On top of that the group is estimated leaking more than a million barrels daily above existing March quota limits of 24.5 million bpd. (Reuters)