Petroleum Africa
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Wednesday, April 28, 2004
According to OPEC President Purnomo Yusgiantoro, the cartel is reviewing its current oil price band to adjust to the US dollar depreciation against major currencies and inflation. Yusgiantoro says that the current price band of $22-$28 is no longer suitable for the current market conditions.
The price band mechanism is aimed at keeping a basket of crude prices within a certain range by increasing production if the price stays above $28 barrel per day for 20 consecutive trading days. If the price stays below $22 per barrel for 10 consecutive trading days, OPEC could cut output.
The OPEC reference basket price is the average price of seven crude oils, namely Saharan Blend (Algeria), Minas (Indonesia), Bonny Light (Nigeria), Arab Light (Saudi Arabia), Dubai (United Arab Emirates), Tia Juana Light (Venezuela) and Isthmus (Mexico).
The OPEC basket price has been close to or above the current price band for over five months, but the cartel, which produces a third of the world’s oil, has decided not to bow to the price band. The cartel argued that the soaring oil price was due to non-fundamental factors, mainly speculation by traders.
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