2005 - OPEC

the early start to the Gulf of Mexico hurricane season brought about fears of a repetition of
the previous year’s Hurricane Ivan that created severe disruptions to oil operations.
The Basket jumped over 12 per cent in the first half of the month, despite the outcome of the
136th (Extraordinary) Meeting of the OPEC Conference to increase the Organization’s produc-
tion ceiling by 500,000 b/d to 28 mb/d, with effect from 1 July. The upward price movement
continued during the second half of the month on fears of a possible supply shortfall following
a security alert in Nigeria. This geopolitical concern, however, proved short-lived. The percep-
tion of healthy demand growth also kept the Basket rising, which was exacerbated further by
evidence of refining bottlenecks. Hence, in the second half of June, the Basket surged some
three per cent, although it should be noted that a softening in demand from China was ap-
parent. June closed with the Basket at $52.04/b.
At the start of July, the Basket reached $55/b following a spate of tropical storms in the
US that hit some operational infrastructure, which in turn, renewed fears of supply short-
falls in both the upstream and downstream. However, once the tropical storms receded
and reports highlighted that demand was waiting to ease in China, the Basket started to
trend downward. However, the monthly average closed at $53.13/b, for a gain of $1.09,
or two per cent.
In August, the Basket witnessed a significant rally on further concerns over downstream tight-
ness that were revived due to news of tight gasoline stocks ahead of the peak US driving
season, as well as further speculation regarding geopolitical concerns and the impending Gulf
of Mexico hurricane season. Refinery outages in the Western hemisphere of nearly 2 mb/d
during August also exacerbated the rise in oil prices. The basket jumped five per cent in the
first week of August and the upward movement continued following an unplanned shutdown
of an oil production facility in the North Sea, as well as a strike in Ecuador that halted a
significant volume of crude oil output. By the month’s end, the market was already experienc-
ing record high oil prices when Hurricane Katrina hit the Gulf of Mexico, causing significant
disruption to both refining capacity and upstream production. At the end of the month, the
Basket stood at $57.82/b, a gain of $4.69, or almost nine per cent.
The Basket saw another volatile month in September as the market offered mixed signals.
While the impact of Hurricane Katrina and Rita were major concerns, a call by the IEA to
release crude oil and fuels from the OECD emergency stocks, alongside OPEC’s decision to
make available 2 mb/d of spare capacity to the market if required, alleviated much of the
hurricane’s impact on prices. Therefore, the Basket’s monthly average was only 6¢ higher,
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