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Knocking on OPEC’s door

Sarah Gardner Nov 30, 2006

KAI RYSSDAL: Oil jumped to two-month highs today. Up about a percent to $63.13. Cold weather in the U.S. has the speculators buzzing. That, and the possibility of OPEC strengthening its hand. The oil cartel hasn’t added any new members since 1975. But three countries have been angling to get into the club this week. Today it was Angola and Sudan. Earlier this week Ecuador announced it’s considering OPEC membership. A growing number of countries want more control over their main natural resource. Sarah Gardner reports from the Marketplace Sustainability Desk, OPEC might just help them do that.

SARAH GARDNER: Angola’s oil production has been rising. It’s now China’s biggest supplier and expects to pump as much as 2 million barrels a day by next year. Sudan is a smaller player but both African countries believe joining OPEC will give them leverage. Fadel Gheit, senior energy analyst at Oppenheimer and Company, says it’ll strengthen their bargaining power with the foreign oil companies that operate within their borders.

FADEL GHEIT: It allows these countries to extract a higher royalty rate from foreign oil companies.

That’s not because OPEC has a standard royalty fee. But as crude prices have risen, a growing number of countries are demanding a bigger share of the profits. Algeria, for one, just passed a new law that boosted the income tax oil companies must pay. Today, however, there were warnings that Angola and Sudan’s plans to join OPEC might be a double-edged sword. The International Energy Agency, advisor to oil-consuming countries like the U.S., said it could scare off foreign investment. But energy economist Phillip Verleger begs to differ.

PHILLIP VERLEGER: I think it’s total nonsense. Today many major oil companies are investing in Venezuela, even though Hugo Chavez and the government of Venezuela have made it much more difficult to earn a profit.

Oppenheimer’s Fadel Gheit says oil prices are so high right now, both foreign companies and their hosts are coming out winners.

I’m Sarah Gardner for Marketplace.

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