TURKEY - The Global Perspective.

Market prices of crude oils, diesels, gasolines and other petroleum products are high and will rise further in the coming months. The main factors are in the following order of importance: capacity shortages for oil refining and storage in the US and Asia, high oil demand in the US and China, and political instability in the Middle East compounded with OPEC calls for a price range higher than its $22-28/b band in view of a weak US dollar.

Saudi Oil Minister Ali Naimi says his country remains committed to the four-year-old range of $22-28/b. But on April 29, Qatari Energy Minister Abdullah Al-Attiyah hinted that OPEC was likely to review the band at an informal meeting during an international oil summit in Amsterdam on May 21. He stressed, however, that no official proposal had been put forward to change the band. With inflation rising and stocks falling in the US, G7 finance ministers and central bank governors warned in Washington recently that high energy prices cast a shadow over prospects for a rapidly recovering economy.

The spot prices of crude oils, as well as the front-month futures contracts at NYMEX and IPE, carry about $8-10/b premia that reflect uncertainties over the factors mentioned above. Front-month WTI could shoot above $40/b before the end of the driving season in the US.

Capacity shortages at both the upstream and downstream ends of the petroleum industry in 2000 were a clear warning that, unless major investments were made to close the gaps, energy price spikes could cause deep recession across the globe. No major investments were made because of 9/11, as world energy demand slumped and the market was thus balanced through to late 2002. When Venezuela went on strike on Dec. 2 of that year, the oil market raised the uncertainty premia by more than $8/b because the world was expecting a US-led invasion of Saddan's Iraq. Oil prices shot up in March 2003 because unrest in Nigeria caused its supply to be cut by more than 800,000 b/d and Iraqi oil exports stropped as a result of the ensuing war.

Throughout the period of uncertainty and high oil prices, however, the US Energy Department continued to buy crudes to replenish its Strategic Petroleum Reserve (SPR). Now that the SPR is near its 700m barrel capacity, people in the US petroleum industry are wondering whether the Bush administration would release some of the stocks to tame a gasoline market that has gone wild already.

The Venezuela Threat Vs Saudi Assurance: President Hugo Chavez still suspects that the Republican administration of George W. Bush wants his head. He can make Bush lose the presidential election on Nov. 2 by stopping Venezuelan oil exports to the US before September. Against this, however, are two scenarios: (1) Bush will immediately release oil from the SPR, or (2) Saudi Arabia will flood the US market with its oil before September (see below).

Interviewed by Venezolana de Television channel on May 2, Chavez's Energy and Mines Minister Rafael Ramirez said: "We (OPEC) have been very cautious, we made a cut and will continue evaluating what measures to take to defend our price". He said Venezuela will move forward with its initiative to increase the OPEC price band from $22-28 to $24-30/b.

Then Ramirez brandished the oil weapon by saying: PDVSA intended to diversify its portfolio of petroleum clients because it considered inappropriate to tie to the US most of its oil production.

On April 30, June Brent at the IPE spiked to a three-and-a-half-year high and touched $35/b before closing at $34.48, up 10 cents/b from April 29. June WTI at NYMEX rose seven cents to $37.38/b.