OPEC PRICE BAND
OPEC collects price data on a "basket" of crude oils, and uses
average prices for these oil streams to develop an OPEC
reference price to monitor world oil market conditions. From
January 1, 1987 to June 15, 2005, OPEC calculated an
arithmetic average of seven crude oil streams, including:
Algeria's Saharan Blend, Indonesia Minas, Nigeria Bonny Light,
Saudi Arabia Arab Light, Dubai Fateh, Venezuela Tia Juana and
Mexico Isthmus (a non-OPEC oil) to estimate the OPEC basket
price. This OPEC basket price averaged $36.05 per barrel in
2004, $28.10 per barrel in 2003, $24.36 per barrel in 2002,
$23.12 per barrel in 2001, and $27.60 per barrel in 2000.
At its 136th
meeting to review oil markets on June 15, 2005, OPEC decided to
change both the composition of the basket, and the way that it
is calculated. According to OPEC, the changes were made to
better reflect the average quality of crude oil in OPEC Member
Countries. Effective June 16, OPEC's reference basket now
consists of eleven crude streams representing the main export
crudes of all member countries, weighted according to production
and exports to the main markets. The crude oil streams in the
basket are: Saharan Blend (Algeria), Minas (Indonesia), Iran
Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait
Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar
Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF
17 (Venezuela). According to OPEC, the API gravity for the new
Basket is heavier, at 32.7º compared to 34.6 º for the previous
basket of seven crudes. In addition, the sulphur content of the
new Reference Basket is more sour at 1.77%, compared to the
previous basket of 1.44%. OPEC calculated that on June 15 (the
last day that the old reference basket was calcuated), the new
basket would have averaged $50.03 barrel, over $2 per barrel
less than the old basket price of $52.26 per barrel.
In addition to the
OPEC Basket, several other crude oil prices are used to follow
world oil market conditions. Because the U.S. benchmark, West
Texas Intermediate (WTI) crude oil, is a very light, sweet (low
sulfur content) crude, it is generally more expensive than the
OPEC basket, which is an average of light sweet crude oils such
as Algeria's Saharan Blend and heavier sour crudes (with high
sulfur content) such as Dubai's Fateh. Brent is also lighter,
sweeter, and more expensive than the OPEC basket, although less
so than WTI.
At its March 2000 meeting, OPEC set up a price band mechanism
triggered by the OPEC basket price, to respond to changes in
world oil market conditions. According to the price band
mechanism, OPEC basket prices above $28 per barrel for 20
consecutive trading days or below $22 per barrel for 10
consecutive trading days would result in production adjustments.
This adjustment was originally automatic, but OPEC members
changed this so that they could fine-tune production adjustments
at their discretion. Since its inception, the informal price
band mechanism has been activated only once. On October 31,
2000, OPEC activated the mechanism to increase aggregate OPEC
production quotas by 500,000 barrels per day.
On September 1,
2005, the OPEC basket price rose to $61.37 per barrel, its
highest price since the price band mechanism was established.
Since December 2, 2003, when the basket price last crossed the
$28 per barrel threshold, the OPEC basket price has traded above
the $28 per barrel level for 455 consecutive trading days
through August 4, 2005. At its January 30, 2005 meeting, OPEC
decided that market changes had rendered the band unrealistic,
and decided to temporarily suspend the price band mechanism.
MEETINGS, ANNOUNCEMENTS, AND RELATED EVENTS
The OPEC countries hold meetings
at OPEC headquarters in Vienna, Austria, where they decide
issues and make announcements that influence world oil markets
and prices. Quota decisions apply to all OPEC countries
excluding Iraq (the OPEC 10), which has been excluded from all
quota decisions in recent years. Major developments in the past
year include:
January
12, 2003: OPEC held its 123rd meeting to review oil
markets in Vienna, Austria. OPEC decided to raise its production
quotas from 23 million barrels per day to 24.5 million barrels
per day, effective February 1, 2003, in order to ensure adequate
supplies of crude in response to the oil supply shortfall in
Venezuela.
March
11, 2003: OPEC held its 124th meeting to review oil
markets in Vienna, Austria, leaving OPEC output quotas
unchanged.
March
17, 2003: The UN Secretary-General announced the
temporary withdrawal of all humanitarian personnel from Iraq.
Although oil continued to flow through the oil pipeline from
northern Iraq to the Turkish Mediterranean port of Ceyhan, the
UN’s independent oil overseers were withdrawn from the Iraqi oil
platform at Mina al-Bakr in the south. These are the only
outlets for Iraqi oil exports allowed under the UN's
Oil-for-Food Program.
March
19, 2003: War in Iraq began with the bombing of
Baghdad.
March
20, 2003: OPEC resolved to make up for any supply
shortfall resulting from "events unfolding in Iraq". Member
countries pledged to use their available excess capacities to
ensure continued supply.
April
24, 2003: OPEC held its consultative meeting in
Vienna, Austria. OPEC decided to reduce actual OPEC 10
production by 2 million barrels per day to the new OPEC 10
production quota of 25.4 million barrels per day, effective June
1, 2003 (the production figure is from OPEC).
May 22,
2003: The UN Security Council adopted Resolution
1483, lifting civilian sanctions on Iraq, ending UN monitoring
of the export of crude oil and petroleum products from Iraq, and
phasing out the UN's Oil-for-Food Program over the next six
months.
May 27,
2003: The U.S. lifted most of its remaining sanctions
on Iraq, thereby implementing U.N. Security Council Resolution
1483.
June 3,
2003: The thirteenth phase of Iraq's oil-for-food
program ended.
June 11,
2003: OPEC held its 125th meeting to review oil
markets in Doha, Qatar, leaving OPEC output quotas unchanged.
July 31,
2003: OPEC held its 126th meeting to review oil
markets in Vienna, Austria, leaving OPEC output quotas
unchanged.
September 24, 2003: OPEC held its 127th meeting to
review oil markets in Vienna, Austria. OPEC decided to lower its
production quota from 25.4 million barrels per day to 24.5
million barrels per day, effective November 1, 2003.
November
21, 2003: The UN's oil-for-food program closed after
nearly 7 years of operation.
December
4, 2003: OPEC held its 128th meeting to review oil
markets in Vienna, Austria, leaving OPEC output quotas
unchanged.
February
10, 2004: OPEC held its 129th meeting to review oil
markets in Algiers, Algeria. OPEC decided to lower OPEC's
production quota from 24.5 million barrels per day to 23.5
million barrels per day, effective April 1, 2004.
March
31, 2004: OPEC held its 130th meeting to review oil
markets in Vienna, Austria. OPEC re-confirmed the new production
ceiling of 23.5 million barrels per day effective April 1, 2004,
which was agreed upon at the 129th Meeting held on February 10,
2004 in Algiers.
June 3,
2004: OPEC held its 131st meeting to review oil
markets in Beirut, Lebanon. OPEC decided to increase its
production quota to 25.5 million barrels per day effective July
1, 2004, and to 26.0 million barrels per day effective August 1,
2004.
September 15, 2004: OPEC held its 132nd meeting to
review oil markets in Vienna, Austria. OPEC decided to increase
its production quota to 27.0 million barrels per day effective
November 1, 2004.
December
10, 2004: OPEC held its 133rd meeting to review oil
markets in Cairo, Egypt, leaving OPEC output quotas unchanged.
However, OPEC pledged to cut overproduction over quota levels by
1 million barrels per day effective January 1, 2005.
January
30, 2005: OPEC held its 134th meeting to review oil
markets in Vienna, Austria, where it decided to leave its target
production levels unchanged, and to temporarily suspend its
price band mechanism.
March
16, 2005: OPEC held its 135th meeting to review oil
markets in Isfahan, Iran, and decided to increase its production
quota to 27.5 million barrels per day effective immediately.
June 15,
2005: OPEC held its 136th meeting to review oil
markets in Vienna, Austria, and decided to increase its
production quota to 28 million barrels per day effective July 1.
OPEC authorized an additional 500,000 barrels per day increase
in its quotas "should oil prices remain at current levels or
continue to rise further." OPEC also decided to replace its
previous OPEC reference basket of seven crude oils with a new
one consisting of eleven crude streams, effective June 16.
September 19, 2005: OPEC will hold its 137th meeting
to review oil markets in Vienna, Austria.
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