OPEC Oil Output Boost Not Enough, Asia Refiners Say
Singapore, June 22 (Bloomberg) -- OPEC's decision to raise oil output by about 2.5 percent, the second increase this year, won't meet demand or bring oil prices down from levels more than 70 percent higher than a year ago, Asian refiners said.
The 11-member Organization of Petroleum Exporting Countries agreed in Vienna yesterday to raise its production quota by 708,000 barrels a day, starting July 1, OPEC Secretary General Rilwanu Lukman said. That's less than the 1 million barrels processors said is needed from OPEC, which pumps 40 percent of the world's oil.
``The increase isn't enough,'' said Keiichiro Okabe, chairman of the Petroleum Association of Japan. ``Japanese refiners are in no condition to absorb any further increase in crude costs.''
Competition between gasoline retailers in Japan, the world's second-biggest oil importer, has curbed increases in domestic fuel prices, eroding refiners profit margins as crude costs rose.
South Korea said the cost of its planned imports of 880 million barrels of oil this year could rise 25 percent from the estimated $20 billion, preventing Asia's second-biggest oil importer from meeting its targeted trade surplus of $12 billion.
``OPEC should have increased production by at least 1 million barrels,'' said Gregory Lee, general manager of the crude oil trading team at SK Corp., Korea's largest refiner.
In trading in Asia on the Access electronic trading system, crude oil for August delivery on the New York Mercantile Exchange recently traded at $31.01 a barrel, down 38 cents or 1.2 percent.
``The output increase might push oil prices down slightly,'' said Hidejiro Ohsawa, president of Japan's biggest refiner Nippon Mitsubishi Oil Corp. ``But we believe the price will remain steady given the low level of inventories all over the world and the continuing strong demand.''
Inflation
Prolonged high oil prices could fuel inflation and slow economic growth as companies' energy costs rise, analysts said. They could also cause OPEC and other producers to lose market share as power providers and other users invest in alternative fuels such as natural gas.
``If crude prices stay around $30 in the long run, all Japanese companies, let alone oil and chemicals companies, will suffer,'' said Takeshi Hyuga, a senior economist at NLI Research. ``The current state of the economy doesn't allow most Japanese manufacturers to pass on rising raw material costs.''
Analysts say prices will likely remain between $25 and $30 until OPEC meets again in September.
Some Relief
Central banks in Europe and the U.S. during the past year have raised interest rates, in part because of concern that rising energy costs will fuel inflation. While more risks lie ahead, increased supply and OPEC's pledge to keep a lid on prices provides some relief, investors said.
High oil prices ``are a little worrying,'' said Andrew Milligan, who helps oversee 55 billion pounds ($82 billion) as director of research at Morley Fund Management in London. ``If OPEC can protect the top side of the $25- to $30-a-barrel range, that will be a relief for central banks.''
In Asia, where Japan, South Korea and Southeast Asia, are still recovering from the deepest recessions since the Second World War, the gain in oil prices could do more damage.
``We can't rule out that rising crude oil prices could hamper the world economy and, especially, Asian economies which are now on the recovery track,'' said Okabe at the Petroleum Association of Japan.
`Reasonable'
The increase in supplies from OPEC is ``reasonable and fair,'' Kuwaiti oil minister Sheikh Saud Nasser al-Sabah said after the Vienna meeting. ``We have to see how the market will react.''
The new production agreement, excluding Iraq, will add between 600,000 and 800,000 barrels of daily OPEC output to the market, Lukman said. Non-OPEC nations, such as Mexico and Norway, may add another 200,000 to 300,000 barrels of oil a day, he said.
OPEC wants to keep prices around $25 a barrel, based on an index of several grades of crude oil it monitors, Lukman said. Prices reflected in the index usually are about $3 lower than prices in New York.
``We seem to be in an OPEC-driven world in the next two to three years,'' said Peter Davies, chief economist at BP Amoco Plc. ``Market pressures will cause OPEC producers with spare capacity to increase production. Capacity growth outside OPEC will not be sufficient to meet growth in demand.''
OPEC produced about 28 million barrels a day last month, or 25.21 million barrels excluding Iraq, which isn't party to the production quotas. The 10 other members will have a new quota of 25.4 million barrels a day, up from an earlier quota of 24.692 million, OPEC said.
OPEC ministers said they would target prices of around $25 a barrel when averaged over a year for its index of crude oils.
``We have a mechanism to keep prices around'' $25 a barrel, said Abdalla Salem El-Badri, who led the Libyan delegation to OPEC. ``We will release more crude into the market when need be.''
Jun/22/2000 5:41 ET |
