Producer reluctance, supply woes & weak dollar drive up oil prices

BEIJING, April 22 (Xinhua) -- The reluctance of oil producers to increase output, coupled with supply disruptions in oil-rich countries and a continuously declining dollar are the major forces driving up oil prices, which touched a new record high of nearly 120 U.S. dollars per barrel (dpb) Tuesday.

At the 11th International Energy Forum (IEF), which concluded in Rome on Tuesday, energy ministers from the Organization of Petroleum Exporting Countries (OPEC) and oil-rich nations like Russia and Norway, as well as major oil company chiefs from around the world, voiced concern over the surging oil prices.

However, they did not present any policy shifts amid global appeals for an increase in output.

OPEC Secretary General Abdullah al-Badri dismissed such demands as unfounded, claiming more oil on the market would not mean lower prices and the hike in prices had nothing to do with supply and demand.

"OPEC will not hesitate to increase production if we think the higher price is caused by the shortage of oil in the market, but we are confident that it's not a shortage of oil. It's something else," said al-Badri.

His comments were echoed by Bahrain's Oil Minister Al-Hussain Bin Ali Mirza. "It is not going to go down to the earlier levels, but how much higher it will go depends on a number of things -- the geo-political situation, whether there is a natural disaster, whether there is speculation in the market, whether there are strikes in certain producing countries. So there are many other factors, rather than OPEC production."

Saudi Arabian Energy and Mines Minister Ali Bin Ibrahim al-Nuaimi also called for calm in the face of skyrocketing oil prices while maintaining that there was no oil shortage in sight.

Apart from this unwillingness to increase production, security concerns in some oil-producing countries have also added to global oil woes.

Production in Africa's largest oil producer Nigeria had already been running below capacity due to a volatile security situation, and suffered fresh disruption Monday following a rebel attack on two major pipelines belonging to Shell Petroleum Development Company (SPDC), a Nigerian arm of the Royal Dutch Shell Plc.

The attacks followed a separate pipeline attack last week, which forced Shell to shut off exports of around 169,000 bpd of crude from its Bonny terminal in southern Nigeria for the rest of April and May.

Also in Nigeria, Italian energy giant Eni said sabotage has cut crude output from one of its facilities by about 5,000 bpd.

To make matters worse, workers at Ineos Plc's Grange mouth refinery in Britain, which has a capacity of 196,000 bpd, have threatened to strike, stoking worries that a shutdown could disrupt production from North Sea oil fields.

In the United States, a Shell pipeline with a capacity of 1.2 million bpd was closed in the Midwest due to a leak and the U.S. Energy Information Administration (EIA) said in a weekly report that crude inventories fell unexpectedly in the week ending April 11.

Both incidents have got traders even more worried about crude supply.

Even in oil-rich Russia, production dropped this year for the first time in a decade, according to an International Energy Agency report, raising concerns whether the key producer will have enough supply to help meet growing global demand.

Mexico's Merchant Marine also recently announced the closure of the Pacific oil port of Salina Cruz because of strong wind and high waves.

Meanwhile, many analysts blame a weak U.S. dollar for the spiraling oil price.

On Tuesday, the euro surged above the 1.60-dollar level for the first time as European Central Bank (ECB) officials indicated they will increase interest rates if inflation does not come down. The 15-nation single currency euro reached a high of 1.6018 dollars during the day.

"The fact that the euro is strengthening against the dollar only fosters higher oil prices. The U.S. dollar has an inverse relationship to the price of a barrel of crude. As opposed to their U.S. brethren, ECB officials appear determined to combat rising inflation," said Conley Turner, senior research analyst at Wall Street Strategies.

Dollar deterioration and inflation expectations are "the most important factors" behind the oil price hike, Societe Generale analysts said.

In addition, suspicion directed against biofuels have also worsened the situation amid surging prices of food worldwide, since some biofuels are produced from staple food crops.

British Prime Minister Gordon Brown blamed biofuels for food shortages in a recent letter to other G8 leaders, even as Britain and Germany reconsider EU plans to boost the use of biofuels in the coming years.

Shell, the world's top marketer of biofuels, also admitted that these alternative fuels would not solve the world's energy problem. As early as in 2006, one of its executives once considered using food crops to make biofuels "morally inappropriate" as long as there were starving people in the world.