OPEC Seen Raising Output,But Not Enough To Sink Prices
NEW YORK (Dow Jones)--The Organization of Petroleum Exporting Countries is
likely to lift its output ceiling next month, but the expected size of that
increase won't be enough to cause oil prices to plunge, analysts said.
"They realize that they need to add more barrels, but that increase, in and
of itself, won't be enough to cause prices to drop dramatically," Paine
Webber oil analyst Chris Stavros said Friday. "The only thing that will
cause prices to drop dramatically is a build in inventory."
OPEC ministers gather for their semiannual meeting in Vienna on Sept 10. The
group's officials deny that there is a shortage of oil, but say they are
ready to increase production if oil prices remain at their current levels.
The group has raised its production quotas twice this year, by a total of
about 2.5 million barrels a day.
But those production increases have failed to ease high oil prices, and
analysts said growing pressure from consuming countries will force OPEC to
raise its output yet again - this time by 500,000 barrels a day to 750,000
barrels a day from its current ceiling 25.4 million barrels a day, excluding
Iraq.
With the price of crude futures on the New York Mercantile Exchange hovering
near $32.00 a barrel, consuming nations are growing more vocal in calling
for more oil.
President Clinton has expressed concern that high oil prices are weighing on
the global economy and on Saturday urged Nigerian President Olusegun
Obasanjo to encourage other oil-producing nations to increase production.
Australia, another major oil consumer, on Friday instructed its ambassadors
to OPEC nations to urge the group to help drive down the price of oil to a
"sustainable level."
"They are hearing it from everyone now," said Tom Bentz, an energy analyst
at Paribas Futures in New York. "They have realized the situation. They will
try to raise output."
According to analysts and news reports, OPEC will likely premise any output
increase on the group's price-band mechanism.
Under the mechanism, which the group failed to trip in June, OPEC would
increase its output by 500,000 b/d if its reference price for oil stayed
above $28 a barrel for 20 consecutive days. That price stood at $30.44 a
barrel Friday, its tenth straight day above the band.
OPEC Might Not Be Able To Deliver New Oil In Full
But higher quotas won't necessarily translate into increased production.
Most OPEC countries are already producing at full capacity, analysts said,
so the cartel may not be able to deliver on a pledge to increase supply.
"The question is, is it enough, how much can they raise output," Bentz said.
"There isn't a whole of excess capacity."
Only Saudi Arabia, OPEC's top producer, is thought to have significant spare
capacity - more than 2 million barrels a day, the most of any producing
country in the world. OPEC members Kuwait and the United Arab Emirates are
also seen as having some.
Signs that OPEC hasn't significantly exceeded its current production limits
have reinforced the perception that OPEC might not be able to produce enough
oil. Once notorious for overproducing, OPEC countries turned in an
astounding 99% rate of compliance with production quotas in July, according
to the Middle East Economic Survey, a respected trade publication.
OPEC members, excluding Iraq, produced 25.66 million barrels a day in July,
a mere 200,000 barrels a day higher than in June and 260,000 barrels a day
above quotas, according to MEES estimates. That means that OPEC's July quota
increase largely ratified overproduction by the group rather than putting
fresh barrels on the market.
"The problem OPEC faces right now is that most members can't produce any
more than they are allocated," said Tom Blakeslee, an analyst at Energy
Merchant in Wilton, Conn. "They may increase quotas by 500,000 barrels a
day, but that certainly won't equate to half a million barrels a day."
Recent forecasts by the Department of Energy and the International Energy
Agency, the Paris-based energy watchdog for the West, indicated that
increased production by OPEC and non-OPEC countries would produce a surplus
of 1 million barrels a day to 2 million barrels a day during the second and
third quarters of the year.
But inventory data contradict that projection. In the U.S., inventories now
stand at 279.706 million barrels, about their lowest levels in a quarter
century, according to the American Petroleum Institute, a trade group in
Washington.
Analysts believe that the oil from OPEC's output increases will eventually
find its way into U.S. inventories.
It will have to, if prices are to fall.
"Even if OPEC chooses to increase quotas by 1 million barrels a day or more,
the market might remain skeptical until they see the barrels arrive and
inventories rise again," said Paine Webber's Stavros. |
