OPEC agrees to biggest increase in quotas since 1997: Report
Friday, June 4 2004 - 12:27 AM WIB
OPEC will raise its output targets by 2 million barrels a day, or 8.5 percent, as of July 1, and add another 500,000 barrels a day in August, said the Saudi Arabian oil minister, Ali al- Naimi, after the meeting in Beirut. The delay in adopting the full amount raised concern members may back down from plans to pump at their limits.
``It looks like they don't want to put out a forceful message to bring prices down,'' said Roger Diwan, managing director of markets and countries for Washington-based consulting company PFC Energy, who was in Beirut.
Oil prices have jumped 20 percent this year and reached a record $42.45 a barrel yesterday in New York, a level that German Chancellor Gerhard Schroeder said threatens world economic growth. Prices have risen because of growing demand, as refining bottlenecks limit gasoline supplies and on concern that Middle East oil fields will be attacked. OPEC scheduled another meeting on July 21 in Vienna.
``We are very concerned about high oil prices,'' OPEC President Purnomo Yusgiantoro of Indonesia said in Beirut. ``We are encouraging our member-countries to do as much as they can. But we can only do so much.''
OPEC's new quota of 25.5 million barrels a day in July is less than the 26.35 million a day that members pumped in May, according to estimates from PetroLogistics Ltd., a Geneva-based tanker-tracking company. OPEC has exceeded its limit since January 2001.
Because the group is already pumping above the quota, the OPEC increase will probably add only 1 million barrels a day to world markets, said Bijan Namdar Zanganeh, the oil minister for Iran, OPEC's second-largest producer.
Crude oil prices declined after a government report showed inventories last week rose. Prices fell 46 cents to $36.40 a barrel on the International Petroleum Exchange in London. In New York, crude dropped 68 cents to $39.28.
``High energy prices, for instance current oil prices, obstruct the prospects for economic development worldwide,'' Schroeder said in remarks prepared for delivery at a conference on renewable energy in Bonn and e-mailed to news organizations. ``They threaten the recovery in the industrialized economies.''
For two decades, OPEC has allocated production quotas to its members to limit output and regulate the market, decisions the group has no formal mechanism to enforce. Of the 11 members, all except Iraq are assigned a quota.
It's the largest increase in OPEC's quotas since November 1997, when the group added supplies as Asian economies slid into recession, lowering fuel demand and sending prices to $10 a barrel a year later.
World oil demand this year will rise by 1.95 million barrels a day, or 2.5 percent, the most since 1988, led by China and the U.S., according to the International Energy Agency, an adviser to 26 oil-consuming nations.
``It's the opposite'' from 1997, said Adnan Shihab-Eldin, the head of research at OPEC's headquarters in Vienna, who was in Beirut. ``Then, there was a demand collapse. Now, there is a demand surge.''
OPEC is already pumping oil at close to capacity, Purnomo said. Most of its idle capacity lies in Saudi Arabia, and Indonesia and Venezuela are failing to meet their present targets, according to Bloomberg estimates.
``Most of the taps in OPEC are open already, which makes it more difficult for them to increase production,'' said Shelley Mansfield, the energy manager at ADM Investor Services International in London.
Saudi Arabia, OPEC's top producer, has raised oil output to 9.1 million barrels a day, al-Naimi, 68, said in Beirut, delivering on a pledge he made in May. The kingdom says its full oil capacity is 10.5 million barrels a day, while outside estimates say the limit may be 10 million.
The United Arab Emirates is boosting production to 2.45 million barrels a day, 400,000 above its current quota, said Obaid bin Saif al-Nasseri, 51, the nation's oil minister, yesterday. That will be its limit, he said.
OPEC considered one proposal for a quota increase of 1 million to 1.5 million barrels a day, and a second calling for a boost of 2 million to 2.5 million a day. Iran and Venezuela lobbied for an increase at the lower level.
``There are many players in this market, and we can decide only about the OPEC output, not the speculation and political instability,'' Iran's Zanganeh said. ``There is not any shortage in the market and we should be very careful about the coming months.''
OPEC may shelve the additional 500,000 barrels a day should it not be needed, Zanganeh said. The Saudi minister, al-Naimi, told journalists the August increase wouldn't be dropped, and may be increased.(*)