Opec looks at suspending oil quotas
By Kevin Morrison and Javier Blas in London
Published: May 28 2004 22:13 | Last Updated: May 28 2004 22:13
news.ft.com
Opec's plans to cool oil prices with a proposal to suspend its production quota system, one of the key pillars of the oil cartel's policy, may not be enough to keep up with global oil demand, which is rising at its fastest rate in 16 years.
A person close to the Organisation of Petroleum Exporting Countries said a temporary suspension of the quotas was one of the issues on the agenda at the Opec meeting in Beirut next week.
It will be discussed first at the ministerial monitoring sub-committee meeting on Wednesday evening in the Lebanese capital. If recommended, it will be debated at the Opec ministers meeting the following day.
"If that is what the market wants, we will recommend it. We are only trying to bring order and stability to oil prices," he said.
Although the suggestion has been welcomed by oil consuming nations in particular, it has also raised new concerns. If Opec, which accounts for about 38 per cent of global production, is going to produce at maximum capacity during the current quarter when demand is soft, this raises the question of how it will cope during the peak demand period in the fourth quarter.
"We cannot solve the whole problem of high oil prices, we need help from other producers and from consuming countries to moderate their demand," the person close to Opec said.
"We have been very surprised by the strength in the demand from China."
The International Energy Agency, the energy watchdog of the Organisation for Economic Co-operation and Development, forecasts global oil demand will average 82.5m barrels a day in the final quarter of 2004, compared with a projected 78.7m b/d in the current quarter.
"If Opec is going to produce at maximum capacity now, and will require another 4m b/d by the end of the year, I don't think we are going to get there," said Graham Sharp, head of oil trading at Trafigura.
Comments this week by Viktor Khristenko, one of Russia's top energy officials, provided little comfort for Opec or global oil markets.
He said Russia oil exports and domestic supplies were facing severe bottlenecks.
The doubling of Russian exports in the past six years has been able to accommodate two-thirds of the near 7m b/d increase in global demand over the same period.
Opec's attempts to cool prices have had an effect, with the US benchmark crude futures price dropping almost 5 per cent from its record close on Monday of $41.72 to yesterday's New York finish of $39.93. But concerns about future supply keeping up with demand has kept prices close to $40.
Opec has also proposed to increase its quotas by between 2m b/d and 2.5m b/d from its ceiling of 23.5m b/d, still below its current output of about 25.8m b/d.
The IEA estimates Opec's sustainable capacity at just under 28m b/d. |
