OPEC 'likely to back Saudi oil output plan'
OPEC ministers today moved toward consensus on formally boosting the group’s oil output. But the move did little to ease concerns that the world’s hunger for crude may soon outpace the organisation’s capacity to feed it.
Nigeria’s presidential adviser on oil matters suggested the Organisation of Petroleum Exporting Countries was leaning toward backing a Saudi proposal to raise output by 500,000 barrels a day.
“I think there will be a moderate increase,” Edmund Dakouru said, adding: “I think everyone will be happy” with a 500,000 barrel daily boost.”
The group, however, hasn’t settled the timing of the increase, Dakouru said. The Saudis want it to take effect immediately.
More crude will likely reach the market, whatever OPEC ministers decide. Saudi Arabia, the group’s major producer, said yesterday it would likely pump an extra 500,000 barrels a day even if other members persist in opposing raising the present group ceiling of 27 million barrels daily.
Kuwaiti Oil Minister Sheik Ahmad Fahad Al Ahmad Al Sabah today said his country will also act without OPEC approval if needed to boost output by 120,000 barrels a day.
At a time of stubbornly high prices, such decisions are meant to tell markets that supply is available to meet demand. It is a message that has previously cooled buying frenzies.
Still, beyond sending a psychological signal of the group’s readiness to respond to high prices, a formal increase of 500,000 barrels daily would only reflect the realities – OPEC members now already produce about 700,000 barrels a day above the group’s total quota.
In signalling that his country would raise output even beyond OPEC approval, Saudi oil minister Ali Naimi said the intention is “to satisfy the demand that is out there”.
But any increase now raises questions about next time. Most forecasts predict even greater world demand in the future.
Estimates vary but most surveys put OPEC’s spare capacity between 1 million to 1.5 million a day.
Most of it is Saudi oil, which needs more refining than the preferred “sweet” crude produced by some other OPEC members. Oil production by states outside OPEC is stagnating.
With western economies generally expanding, demand soon could outstrip supply.
The economic boom in China is already sucking up more than a third of the world’s crude supplies.
India’s hunger for oil is also on the rise. At some point – no one has come up with a firm figure – the market would price oil so high that economies would begin to contract and demand would fall.
“We have to face facts. The International Energy Agency has raised demand estimates to 84.3 million barrels per day and that exactly equals worldwide daily consumption,” said analyst Phil Flynn. “We’re at total equilibrium.”
“OPEC has reached its production limits,” Algerian Oil Minister Chakib Khelil said over the weekend.
“If it came to a crunch, it has capacity for one million barrels.”
The Energy Information Administration, the statistics arm of the US Department of Energy, said yesterday that OPEC’s spare capacity fell to 1 million to 1.5 million barrels a day in February, not enough to cover a loss of Iraqi output.
The EIA and the International Energy Agency, which monitors oil market conditions for the Organisation of Economic Co-operation and Development, both raised their forecasts for 2005 oil demand last week, drawing the picture of a market in which consumption will continue to strain supply.
After weeks of high prices, Washington is calling on producers to take steps to lower the price. The White House complained yesterday that rising energy costs were a drag on the US economy.
White House press secretary Scott McClellan said the administration was telling oil producers “about the importance of acting in ways that support our growing global economy and our growing US economy”.
Oil ministers at the Isfahan meeting, such as Algeria’s and Qatar’s, said that OPEC members had recently received calls from US Energy Secretary Sam Bodman and other senior American representatives.
Even if the ceiling is raised today, experts say the effects would be minimal.
“It will not drive the price down but stabilise it and keep it from zooming into the stratosphere,” said Prof. Anthony Sabino of St. Johns University’s Peter J. Tobin Business School in New York.
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