OPEC Output Is Above Quota, And More Gains Are Expected
By THADDEUS HERRICK and BHUSHAN BAHREE
Staff Reporters of THE WALL STREET JOURNAL
OPEC member nations are cheating on the cartel's self-imposed quotas almost at will, with oil production running 10% above the current official target -- and still rising.
The surge in output by the Organization of Petroleum Exporting Countries largely reflects the will of Saudi Arabia, the cartel's biggest producer, which has long promised to provide enough oil to world markets to keep prices in check. Analysts say Saudi Arabia, which accounts for close to half of OPEC's current excess production, may have turned up the taps in part to position supplies close to markets in case war should break out between the U.S. and Iraq. Some of these supplies are thought to be stored on tankers at sea, as well as on land in the western part of Saudi Arabia, a safe distance from the Persian Gulf.
It is unclear how orchestrated OPEC's efforts are. But the soaring output without regard to quota and without any apparent acrimony among the group's members suggests that OPEC has agreed, at least informally, to let its members respond individually to oil prices.
"Everybody is producing what they want," said Roger Diwan, an analyst at the Petroleum Finance Co.
OPEC's increased output comes at a time of low crude-oil inventories world-wide and an expected increase in winter demand in the Northern Hemisphere, factors that could drive up oil prices. Indeed, the extra OPEC oil recently has helped pull prices back from around $30 a barrel.
The U.S. benchmark for crude for December delivery settled Wednesday at $28.18, up 11 cents.
OPEC, which next meets in December, has a self-imposed daily production quota of 21.7 million barrels of oil, not including Iraq, whose exports are regulated by the United Nations. The world consumes about 76 million barrels a day. OPEC members have historically cheated on their assigned quotas from time to time, but current levels of overproduction are relatively high.
Production by the 10 members of OPEC rose 430,000 barrels a day in September to 23.86 million barrels a day, compared with August, according to the International Energy Agency. Including Iraq, the 11th member, production soared by 780,000 barrels a day in September to 25.75 million barrels a day.
Analysts say they expect Saudi Arabia and other OPEC members to raise output sharply, if only to fulfill promises to meet any increases in demand. The International Energy Agency expects world demand to rise by 1.4 million barrels a day in the fourth quarter from the third quarter. As a result, analysts say they expect OPEC production to grow by an additional 500,000 barrels a day in October, and by the same amount again in November.
Such a spurt would restore well over half of the five million barrels a day that the cartel has cut from its official target quota in the past two years, including a cut of 1.5 million barrels a day made last January. "They've opened the tap," said Mr. Diwan.
Still, Saudi Arabia has 1.7 million barrels a day of unused capacity that it could tap immediately, and an additional one million barrels a day that could come on line in 90 days. Iran, Kuwait and the United Arab Emirates also each have about 500,000 barrels a day of unused capacity, while Nigeria holds somewhat less.
Algeria, Indonesia, Qatar, Libya and Venezuela are all at or near their maximum output capacity, with all but Indonesia producing above quota.
OPEC's stated objective is to keep prices around the $25 a barrel midpoint of the group's target price range of $22-$28 a barrel for a basket of crudes. (The OPEC price typically runs about $2 a barrel lower than the U.S. benchmark price.) Excess output by individual OPEC members may achieve this price objective in the short term, but analysts note that it could be difficult for the group to restore production discipline in the future. This could result in a sharp drop in oil prices when seasonal demand declines in the spring, they said.
"This is going to come back to haunt OPEC," said Larry Goldstein, president of the Petroleum Industry Research Association. "OPEC will have a hard time maintaining high prices next year."
Write to Thaddeus Herrick at thaddeus.herrick@wsj.com and Bhushan Bahree at bhushan.bahree@wsj.com
Updated October 24, 2002
-------
OPENING THE TAPS
OPEC member countries' output quotas and actual production, in millions of barrels a day
Country Target Quotas September 2002 Output Difference as % of Quotas
Algeria 0.69 1.03 +49.30%
Indonesia 1.13 1.12 –0.9
Iran 3.19 3.4 +6.6
Kuwait 1.74 1.96 +12.6
Libya 1.16 1.34 +15.5
Nigeria 1.79 2.02 +12.9
Qatar 0.56 0.66 +17.9
Saudi Arabia 7.05 7.81 +10.8
U.A.E. 1.89 2.01 +6.4
Venezuela 2.5 2.53 +1.2
Total 21.7 23.86 +10.00%
Source: International Energy Agency
online.wsj.com |
