Re: The OPEC soap opera continues....
OPEC Debates Oil Output Boost, Though Prices Seen
Staying High
By Brian Gorman the London newsroom
Vienna, June 20 (Bloomberg) -- OPEC ministers are preparing the world's oil
markets for a smaller increase in production than the one agreed to in March, a
sign that energy prices may stay high in coming months, analysts and traders
said.
On the eve of its meeting in Vienna, ministers of the Organization of Petroleum
Exporting Countries said supplies may not be as tight as statistics indicate, even
as prices at $28 a barrel in London threaten to slow demand growth.
After adding 1.7 million barrels to daily output quotas in March, the 11 member
nations may add between 500,000 and 900,000 barrels this time, or as much as
3.2 percent, analysts said. A gain in that range should keep prices, which are
now higher than the last time OPEC met, from falling much, they said.
``We are for a $25 price,'' said Algerian Oil Minister Chekib Khalil, when asked if
there was an agreement to raise production. Still, ``everyone is worried in
general. Putting more crude (in the market) could create a bad situation for
prices.''
Oil ministers who already have arrived in Vienna, such as Obeid bin Seif
al-Nasseri of the United Arab Emirates, have said it's too early for a decision.
Venezuelan Oil Minister Ali Rodriguez, OPEC's president, held preliminary
meetings today with Saudi Arabia, the group's most influential member, and with
Algeria's Khalil.
``Perhaps an increase at this time is inevitable,'' al- Nasseri told the UAE's official
WAM news service. ``Its amount and timing will be subject to the discussions of
the ministers.''
With oil prices up more than 70 percent from a year ago, based on Brent crude in
London, OPEC risks losing market share because high prices encourage new
exploration outside the group. Also, U.S. and European officials have warned that
rising energy prices are contributing to accelerating inflation.
Restraint
Citing a surge in prices, which reached a nine-year high in March, economists
are lowering forecasts for growth in demand. The International Energy Agency
earlier this month said oil use in the second quarter of the year would total 74.4
million barrels a day, 650,000 less than previously expected because of high
prices.
Because of OPEC's last output boost, oil inventories worldwide in the second
quarter should rise by 1.9 million barrels a day, the IEA forecasts.
OPEC oil ministers blame much of the recent rise in oil prices on a lack of
gasoline supplies in the U.S. and speculation in world oil markets.
While central bankers warn of rising energy prices, oil traders said prices have
yet to stem demand.
``Prices are still comfortably below the pain threshold, so it doesn't make sense
for OPEC to let themselves be pressurized by the U.S.,'' said Chris Allan, head
of crude oil futures trading at BP Amoco Plc in London. ``There's a shortage of
gasoline, and producing more Saudi crude won't help.''
Producers such as Saudi Arabia still are recovering from a 1998 plunge in prices
to below $10 a barrel and are unlikely to risk pumping too much, analysts said.
Oil traders have already begun to anticipate that OPEC would agree to more
output, sending prices lower than last week's high of $31.70 a barrel in London. If
OPEC fails to boost supply, prices will shoot to $40 a barrel, some traders said.
Expectations of an increase in daily supply of at least 500,000 barrels is ``in the
price already,'' said Ricardo Scadolini, trader at Agip Petroli U.K., a unit of Eni
SpA.
Agreement
OPEC indicated in March it would boost output by 500,000 barrels a day if its
price benchmark topped $28 a barrel, when averaged over 20 days. The group
failed to act when that limit was breached earlier this month.
A senior Venezuelan OPEC official said yesterday that the index's daily price
must exceed $28 for 20 consecutive days before the agreement takes effect.
While the price went above $28 for just nine straight days through Friday,
Venezuela's deputy energy minister, Bernardo Alvarez, said that wouldn't
preclude OPEC from agreeing to increase production this week.
The benchmark fell to $27.97 on Monday. With prices back in OPEC's range and
another meeting just three months away, few are expecting a big boost in
quotas.
An output increase of 500,000 to 750,000 barrels a day is now in the price of oil,
said John Ruffles, trader at ADM Investor Services International.
``If they don't do anything, prices will rally,'' Ruffles said. ``If it's a million (barrels
a day), they'll fall back a bit.'' |
