OPEC Pact Fails to Calm Oil Price Scare
By Richard Mably
VIENNA (Reuters) - Oil consumers were left
fretting on Monday that worse may still be to come
for fuel bills this winter after OPEC's weekend pact
releasing more supplies failed to contain an explosive
rally in world crude prices. Dealers worried about
low inventories sent oil racing to highs not seen since
the 1990 Gulf crisis despite Sunday's OPEC deal
that raises cartel output by three percent.
OPEC had been hoping its extra oil would quell an
international outcry over high energy bills amid
worries that accelerated inflation could dent world
economic growth.
But cartel ministers admitted on Monday that prices now could be running
out of control.
``We are approaching a crisis of great proportions because oil production
capacity is reaching its limit,'' said OPEC's President, Venezuelan Oil
Minister Ali Rodriguez.
``I don't think prices are going to get there now but they could rise to $40
depending on the winter,'' he added.
``This is all OPEC can do,'' said Iranian Oil Minister Bijan Zanganeh. ``All
the tools are not in our hands.''
The Organization of the Petroleum Exporting Countries lifted output by
800,000 barrels daily to 26.2 million barrels a day. OPEC ally Mexico said it
would add another 200,000 barrels daily later this year.
Brent blend futures rose 84 cents to $33.60. U.S. crude was catapulted to
$35.14, up $1.51 a barrel.
``This just goes to show how little power OPEC really has over oil prices at
the moment,'' said Gary Ross of New York's Petroleum Industry Research
Associates.
``There's a feeling that whatever OPEC does there's not going to be enough
oil this winter,'' added Nigel Saperia of European trading house Glencore.
Saudi Unhappy, U.S. May Use Reserves
Saudi Oil Minister Ali al-Naimi said he was ``not happy'' with the market's
reaction. ``We said before we intend to bring the price down and we will
bring it down. We want the price at $25 a barrel,'' he told OPEC lobby
reporters.
If prices fail to react favorably soon for consumers the United States could
use its huge Strategic Petroleum Reserve for the first time since the Gulf crisis.
``We see a better than 50 percent chance of Washington releasing oil from
the SPR,'' said Ross.
The OPEC pact, effective from October 1, will depend largely on the group's
leading producer Saudi Arabia to provide extra crude. Most others in the
cartel already are pumping to capacity.
``The question remains, exactly how much fresh oil is going be to put in the
market and how fast it will come,'' said Klaus Rehaag, head of the
International Energy Agency's oil market division in Paris.
``Given what they're already producing it's not necessarily going to put a huge
amount of fresh oil into the market.''
Western consuming nations gave OPEC's deal a cautious welcome. A White
House spokesman said: ``Whether this will be effective and will be enough to
stabilize the market remains to be seen.''
Germany's Deputy Economics Minister Siegmar
Mosdorf called the extra supply ``a step in the right
direction,'' but warned that crude needed to fall to nearer
$25 before his country's economy would benefit.
India, a large importer of Middle East OPEC crude, said
it would have liked more. Japan said it remained worried
that America's low heating oil stocks would keep prices
on the boil.
``Whether this will be effective remains to be seen in view of very low heating
oil stocks in the United States heading into the winter season,'' said Keiichiro
Okabe, president of the Petroleum Association of Japan.
British Pumps Run Dry
OPEC's call on importing nations to help ease the burden on consumers by
reducing taxes have fallen mostly on deaf ears.
In Europe, where tax and duty make petrol and diesel among the world's
dearest, fuel protest blockades that started last week in France rippled into
Belgium and Britain.
Five of nine British refineries were blocked by pickets and oil companies said thousands of petrol stations had
run dry.
British Prime Minister Tony Blair said: ``The sensible way, indeed the only right way, to deal with this problem
is to put pressure on OPEC itself, not to let them off the hook by caving into blockades here.''
Producers will review output again at an extraordinary meeting on November 12 but have very little room now
to maneuver on more supply.
Saudi Arabia's official OPEC quota rises 260,000 bpd to 8.51 million barrels a day. A large dose of leakage
already has it pumping well in excess of that allocation but insiders said Riyadh has promised the United States
it would take supply above nine million bpd.
``At the end of the day it's all about what Saudi Arabia will actually produce,'' said Ross.
OPEC Secretary-General Rilwanu Lukman said: ``OPEC won't wait until November if prices get out of hand
again.''
Analysts are not so sure.
``There's less than a million barrels a day of spare capacity available right now,'' said Ross.
``There are no shock absorbers, if there any significant supply losses the market would run into a capacity
wall.''
OPEC's latest deal means it has lifted supply this year by 3.2 million barrels per day, a 14 percent increase,
restoring most of the curbs dating back to 1998 when crude slumped briefly below $10 a barrel.
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