RIYADH, April 7: Is another round of crude price spiral round the corner? Are we heading towards the $70 and 80 mark experienced last year? Oil market prices have bounced back. The oil cartel has managed the markets deftly. Its tactics have worked. Despite all the talk of division in its ranks, the Opec has been successful in keeping the crude prices “fair and justified.”

With many saying that the new Opec floor is somewhere around $50 a barrel, the oil cartel could look back with pride and satisfaction.

Hence at their last meeting, there were reports of complacency. The CGES monthly Oil Report (MOR) noted last month, ‘Opec was in complacent mood at its March meeting, claiming the oil market to be well supplied and deciding to leave output unchanged.’ And the oil cartel indeed had ample reasons for this complacency.

The cuts announced, first in Doha and then in Abuja, have worked well. Prices after slipping below the $50 mark, at one point last year, are once again flirting in the mid-60s range.

But by deciding to keep output unchanged at the lower level, has the oil cartel set the scene for another price spiral in the coming summer months. This is a big question haunting the pundits all around.

Oil production by 11 members of the Opec, excluding Angola, has been reduced by more than 1.4 million barrels per day since the peaks attained in August 2006, the CGES estimated. In view of the current output cuts in place, Opec average has fallen by 0.8 million bpd between 2006 and 2007, including growth in Angola’s production.

The March MOR hence argued, “having cut output at the start of the winter, Opec always risked taking too much oil off the market at a time when demand for exports was strong and that is exactly what happened. Plunging temperatures and slower than expected growth in non-Opec output have depleted stocks and left crude oil in short supply at a time when refiners need to boost throughputs to support the 2Q build in product stocks.’

Others in the industry seem to concur with the above.

Opec has ‘already reached their goal of wiping out a large part of excess inventories and stabilising prices,’ Vera de Ladoucette of Cambridge Energy Research Associates said in Paris.

Others reckon Opec’s ministers are likely to wait until oil-inventory data for the first few months of this year are published in the coming months before making their next move. Many industry leaders seem to suspect that the global inventories are close to becoming so lean that the market is prone to a renewed price surge.

Since Opec cuts last year, inventories with consumers have been falling. Commercial stockpiles in 26 OECD countries in North America, Europe and Asia fell by 93 million barrels in the fourth quarter of 2006 to just 2.674 billion barrels at the end of December. This was just seven million barrels shy of Opec’s target of reducing the inventories by 100 million barrels.

According to Leo Drollas of the Centre of Global Energy Studies, London, global stockpiles through to end March may have fallen by 160 million barrels. “We have not seen a stock draw of this magnitude in several years.”

In the meantime, incremental supplies from non-Opec members also seem compromised, impacting the overall crude equation and the balance. The markets are definitely getting tighter, indicating a price surge in not too distant a future.

Besides the market fundamentals, other factors are also starting once again to impact the overall equation. With war theatre around the Gulf heating up, the fear premium added to the crude market prices are also adding to the woes.

These are the things, much beyond the control of Opec and have nothing to do with market fundamentals. Markets are getting tighter. Weakening fundamentals in association with the emerging geo-political constraints may play havoc with the markets. Even without the geopolitical considerations, things are in to stay tight, unless Opec eases up control. Markets are already reacting to the current tight scenario; and its woes may worsen, especially if the war theatre in the region heats up.