OWN CORRESPONDENT AND REUTERS, Johannesburg | Thursday
SIZZLING oil prices are unlikely to cool off in the near future fuelling speculation that South Africa may have to move away from its neutral monetary policy.
OPEC has indicated it is not keen to take any action to reduce the current crude price of around US$32 per barrel at least until it meets in Vienna in September.
Its president, Ali Rodriguez of Venezuela, said the oil cartel also had no plans to increase production yet, and insisted that the group would stick with its price band mechanism.
The high crude prices are likely to keep the South African interest rates up and could even cause an increase in rates rather than the expected cut hoped for before the end of the year.
Analysts have warned that this could damage further the already fragile economy and certainly curtail the growth in GDP hoped to exceed 3% in the latter part of the year.
Last week the Reserve Bank stated that inflation seemed close to an upper turning point, but these predictions were made before the current sharp hike in crude prices.
At present the Bank neutral monetary policy stance is based on its expectations that the external price hikes would be curtailed and even reversed in the next three months. Economists felt if this did not occur the Bank would be forced to take “appropriate action”.
Comment from experts in Saudi Arabia stated that the high prices were no reason to activate the cartel’s price band mechanism. They explained that this mechanism, agreed at the Vienna meeting last June, stipulates a production increase if oil prices exceed $28 a barrel of OPEC oil and not the North Sea production by which prices are measured. The rise in prices also needs to hold for 20 consecutive days for the band mechanism to kick in.
OPEC will raise or lower output by 500,000 barrels per day (bpd) if prices remain above the band for 20 consecutive days or below the band for 10 days.
Rodriguez, who is also Venezuela’s energy and mines minister, blamed the high prices on speculation, while U.S. Energy Secretary Bill Richardson said he was concerned by recent hawkish statements from Venezuela, which he blamed for high oil prices.