Hey, hey ... I thought oil prices were going down as of yesterday? Does anyone really know?? Nope:
Oil Prices to Remain High, Even as OPEC Pumps More
Vienna, June 21 (Bloomberg) -- The Organization of Petroleum Exporting Countries will boost production starting next month, though not enough to reduce prices that are up more than 75 percent in the past year, analysts and investors said.
OPEC, which supplies 40 percent of the world's oil, will agree on an increase at its meeting in Vienna today, Saudi Arabia's oil minister said. The group wants to add about 700,000 barrels to daily output, or 2.5 percent, a person familiar with Kuwait's oil policy said. OPEC last raised output in April, though prices are up by one-fifth since then as demand outpaced supply.
With the economies of many OPEC nations still recovering from a collapse in prices to less than $10 a barrel in December 1998, ministers fear that a bigger supply boost may cause another decline in prices. Yet consumers say they need a bigger increase to meet rising demand and to restore shrunken inventories.
``Unless OPEC decides to raise output, or shows its intention to do so later this year, crude prices could rise further,'' said Keiichiro Okabe, president of Cosmo Oil Co., Japan's third-largest refiner. ``We'll have a difficult time unless OPEC raises output by 1 million to 2 million barrels towards winter.''
Benchmark Brent crude oil in London rose 40 cents, or 1.4 percent, to $29.42 a barrel, after a $1.04 gain yesterday, as traders saw the increase as insufficient to meet demand. Crude oil for August delivery in New York rose 55 cents, or 1.8 percent, to $31.20 a barrel.
With OPEC already exceeding its production targets, an increase of 700,000 in its quotas ``doesn't add much more than 100,000 barrels to actual production,'' said Kyle Cooper, an energy analyst at Salomon Smith Barney in Houston. ``This keeps prices probably in the low $30s'' a barrel in New York.
`Yes'
When asked if OPEC will pump more oil next month, Saudi Arabia's oil minister, Ali al-Naimi, said, ``the answer is yes.'' He declined to elaborate. Saudi Arabia is the world's largest oil producer and OPEC's most influential member.
The risk for OPEC in keeping supplies tight is that prices rise too much. Crude oil, at $29 a barrel in London, has only rarely fetched more than $30 in the past two decades because it encourages alternative energy sources and competing supplies of oil.
``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.''
Oil ministers gathered earlier today for preliminary talks about their output, before a formal meeting scheduled to begin later today, probably around 6 p.m. in Vienna. OPEC is in the process of reversing a series of output cuts that began in March 1998 and led to the market's recovery during the past 18 months.
Backfire
Its effort to keep prices high may yet backfire. In a bid to profit from high prices, oil companies such as Exxon Mobil Corp. and Total Fina Elf SA this year plan to spend $86.7 billion on exploration and production, 18 percent more than in 1999, Lehman Brothers Inc. said in a survey of 326 companies.
And central banks in Europe and the U.S. during the past year have raised interest rates in part because of rising energy costs, slowing economic growth that drives oil demand. More risks lie ahead, economists warn.
``If there is one thing on the inflation horizon, then it is oil prices,'' said Menno Middeldorp, an economist at Rabobank in Utrecht, Netherlands.
OPEC is divided on how much new oil to pump. Ministers from Algeria and Qatar have said the world has adequate crude supplies, and that recent high oil prices stem from speculation in oil markets and regional gasoline shortages in the U.S.
Those nations with little ability to pump more oil have emerged as the biggest opponents to a substantial boost in output. Most of OPEC's spare capacity lies in Saudi Arabia, Kuwait and the United Arab Emirates.
Concession
Officials from the U.S. and other oil-importing nations have lobbied for increased production, though efforts have been less public than those earlier this year. Whatever the size of the increase, more OPEC oil appears to be near.
``The market might need some more oil at present,'' Obeid bin Seif al-Nasseri, oil minister for the United Arab Emirates, said this morning as he arrived for an informal meeting OPEC ministers, though he declined to elaborate.
Saudi Arabia's al-Naimi today dismissed speculation that an agreement to increase output by half a million barrels a day had been reached, though he said oil output will rise next month.
``The 500,000 number is baseless,'' he said. Naimi declined to elaborate.
More oil than that is needed to relieve consumers from rising fuel prices. Independence Day travelers in the U.S. will pay record gasoline prices this year, as the nationwide average soared 43 percent since the Fourth of July holiday last year, the American Automobile Association reported yesterday.
``Demand is stronger than anticipated, and stock levels of gasoline will not be built up fast enough,'' said Peter Hitchens, an analyst at Williams de Broe.
Price Band
OPEC said in March it would boost output by 500,000 barrels a day if its price benchmark surpassed $28 a barrel, yet failed to act when that limit was breached earlier this month. A Venezuelan OPEC delegate said today the group probably will abandon the system because it wants to retain flexibility in making production decisions.
Some OPEC members have argued that high U.S. gasoline prices, not a shortage of crude oil, are responsible for a recent price surge, a sign of opposition to boosting quotas at today's meeting.
Any output increase from the meeting would likely take effect from July 1. OPEC is next scheduled to meet in September.
While some OPEC members argue there's no shortage of crude inventories, reports from the U.S., the world's biggest energy user, suggest otherwise.
The weekly survey of the American Petroleum Institute showed crude oil inventories fell 4.4 million barrels, or 1.5 percent, to 290.8 million barrels last week. U.S. stocks of crude are 12 percent below the level of a year ago, according to the API.
Even if quotas rise by more than 1 million barrels a day, actual production may rise by less than that amount because the group is already are producing about half a million barrels a day above its target, traders said.
``A paper increase of 500,000 barrels a day is effectively no extra oil at all,'' said Leo Drollas, deputy executive director of the Centre for Global Energy Studies, London-based research group.
Jun/21/2000 11:20 ET |
