OPEC Expected to Boost Oil Supply, Though Prices Will Stay High
Vienna, June 18 (Bloomberg) -- OPEC member nations probably will decide this week to boost oil supplies for the second time this year, though not by enough to ease prices from the highest levels in nine years, analysts said.
The Organization of Petroleum Exporting Countries is expected at its meetings in Vienna to boost daily output by 500,000 to 1 million barrels, or as much as 1.3 percent of world supply, according to a Bloomberg survey of analysts. Any less of an increase will cause a surge in prices already above $32 a barrel in New York, analysts said.
While European central bankers have warned high oil prices threaten economic growth, OPEC members say supplies aren't as tight as they appear. And producers such as Saudi Arabia still are smarting from a 1998 plunge in prices to below $10 a barrel and are unlikely to risk pumping too much, analysts said.
``OPEC has the fortunate and rare position of being able to increase production just enough so that prices don't drop drastically,'' said Aaron Kildow, an analyst at Prudential Securities in New York. Members will have profits ``without looking like the bad guy'' to consuming nations, he said.
Crude oil in New York rose $2.13, or 7 percent, last week to $32.33 a barrel. Prices are up 80 percent from a year ago, boosting revenue for OPEC's 11 members, who account for more than a third of world oil supply. Brent crude oil in London, the European benchmark, rose less than 1 percent to $28.35 a barrel.
Oil ministers began to arrive in Vienna today, with the group's current president, Ali Rodriguez of Venezuela, declining to comment on OPEC policy. Last week he said members had already decided whether to boost output, though he declined to be more specific.
A senior Indonesian oil official, Rachmat Sudibyo, director general of oil and gas at the ministry of mines and energy, said last week that all 11 OPEC members are ready to agree to an oil production increase of at least 500,000 barrels a day.
``This is the basic position of all OPEC members,'' he said.
Survey
In a Bloomberg survey of 22 brokers, traders and analysts last week, three of the respondents expected either no change or an increase of up to 500,000 barrels a day; nine expected an increase of 500,000 barrels; nine saw OPEC adding between 500,000 and 1 million barrels, and one expected the group to add more than 1 million barrels to daily output.
Still, the 10 OPEC members that have quotas already were pumping 518,000 barrels day more than their self-imposed target in May, according to Bloomberg estimates. Overall OPEC production was pegged at 28.18 million barrels a day, or about two-thirds of world supply.
Analysts were divided on whether OPEC would agree to actual production increases or would simply raise their self-imposed quotas to reflect current output.
Some OPEC nations have resisted pressure for more oil from consuming countries such as the U.S., arguing current high prices are a result of speculation in oil markets and new environmental regulations in the U.S., which pushed up gasoline prices. They say OPEC shouldn't increase its quotas until its September meeting.
Any delay in a supply boost may sound alarms among the world's central banks, who are concerned a prolonged period of high oil prices will spur inflation. The European Central Bank said last week the euro-area's 1.9 percent inflation rate ``is not expected to fall back significantly in the near future'' because of a drop in the euro and higher oil costs.
That could be a concern for OPEC because higher prices may slow oil consumption growth.
``Aside from China, countries in the Asia-Pacific, like South Korea and Japan, haven't been consuming as much oil as we expected,'' said Mehdi Varzi, director of research at Dresdner Kleinwort Benson. Higher oil prices could be the reason behind the slack demand, he said.
Spare Capacity?
Only three OPEC members -- Saudi Arabia, Kuwait and the United Arab Emirates -- have large amounts of unused capacity. Among OPEC's other big producers, Venezuela has allowed some of its infrastructure to deteriorate. Iran and Iraq are near full capacity, analysts said.
In the U.S., the world's largest energy consumer, motorists are paying their highest prices ever for gasoline at the pump, with a gallon now around an average of $1.63 nationwide and more than $2 in some cities.
While the U.S. imports half its oil needs, Japan depends entirely on foreign supplies and suffered a blow to its goal of developing overseas reserves when Tokyo-based Arabian Oil Co. failed in February to renew a production agreement with Saudi Arabia.
``It's time for Japan to get serious about its energy security,'' said Noboru Kuroyanagi, executive vice president at Chubu Electric Power Co. ``Japan's goal of self-sufficiency in crude supply is an endless dream.''
Executives at international oil companies -- encouraged by OPEC's recent success at keeping prices high -- are renewing expansion plans. Exploration and production spending worldwide this year may be $86.7 billion, 18 percent more than in 1999, according to a survey of 326 companies by Lehman Brothers Inc.
Jun/18/2000 7:29 ET |
