Opec divided on boosting supply
Wednesday, 12 September 2007
Javier Blas
OPEC is concerned about the rapid fall in crude oil inventories ahead of the northern hemisphere's winter season, but is divided over the need for an immediate increase in supply, according to Opec officials.
The Organisation of the Petroleum Exporting Countries, which controls 40 per cent of global oil production, is under strong pressure from consumer countries to increase its production as oil prices approach $80 a barrel.
"There is agreement that Opec should do something to cool down the market, but there is still disagreement in exactly what to do and when to do it," an official said.
Saudi Arabia, the world's largest oil producer, is understood to be in favour of the oil cartel signalling it will raise production. The kingdom is concerned about the rapid drop in US oil inventories and believes winter demand will be above Opec's official projections.
Saudi Arabia pointed out to fellow Opec members that the current shape of the oil market, known as "backwardation" - when spot prices trade higher than longer-dated futures - would encourage further inventory drops in coming weeks.
PFC Energy, the Washington-based energy consultants, said Saudi Arabia would be in favour of a production increase in the range of 500,000-1.0m barrels of crude oil a day.
David Kirsch, an analyst at PFC Energy, said: "Saudi Arabia will need to convince other delegations that such a move is necessary in order to ensure the longer-term health of world oil demand - a move many countries will be reluctant to take."
Ali Naimi, Saudi Arabia oil minister, on Sunday remained silent about his official proposal for the meeting.
The International Energy Agency, the industrialised countries' energy watchdog, forecasts oil consumption will surge from a current 86.12m b/d to 88.05m b/d in the last quarter of the year.
Most Opec countries appeared reluctant to endorse any immediate production rise on fears that the credit squeeze may slow down economies and crude oil consumption. They instead want to wait until December, when the impact market turmoil has on crude oil demand will be clearer.
Mohammed al-Hamli, the oil cartel president and United Arab Emirates oil minister, said Opec's supply was sufficient and blamed bottlenecks at refineries and geopolitical tension for the high prices.
Iraq and Indonesia supported an immediate production increase. Hussein Shahristani, Iraq oil minister, said ahead of the meeting that Opec "will be discussing if there is a need to increase its production slightly to meet the increased demand".
Officials said one solution was for Opec to say it would increase output at its next ministerial meeting, in December. That might reassure the market while providing it with enough room to manoeuvre in case crude oil demand faltered.
"It may be difficult to reach a consensus for an immediate output increase, but most countries agree on sending a signal that more oil would be pumped at later stage," an Opec official said.
Paul Horsnell of Barclays Capital in London, said complete inaction by Opec at last week's meeting "would most likely not only mean new all-time highs being set, but highs well into the $80 and perhaps beyond".
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— FT Syndication Service
OPEC is concerned about the rapid fall in crude oil inventories ahead of the northern hemisphere's winter season, but is divided over the need for an immediate increase in supply, according to Opec officials.
The Organisation of the Petroleum Exporting Countries, which controls 40 per cent of global oil production, is under strong pressure from consumer countries to increase its production as oil prices approach $80 a barrel.
"There is agreement that Opec should do something to cool down the market, but there is still disagreement in exactly what to do and when to do it," an official said.
Saudi Arabia, the world's largest oil producer, is understood to be in favour of the oil cartel signalling it will raise production. The kingdom is concerned about the rapid drop in US oil inventories and believes winter demand will be above Opec's official projections.
Saudi Arabia pointed out to fellow Opec members that the current shape of the oil market, known as "backwardation" - when spot prices trade higher than longer-dated futures - would encourage further inventory drops in coming weeks.
PFC Energy, the Washington-based energy consultants, said Saudi Arabia would be in favour of a production increase in the range of 500,000-1.0m barrels of crude oil a day.
David Kirsch, an analyst at PFC Energy, said: "Saudi Arabia will need to convince other delegations that such a move is necessary in order to ensure the longer-term health of world oil demand - a move many countries will be reluctant to take."
Ali Naimi, Saudi Arabia oil minister, on Sunday remained silent about his official proposal for the meeting.
The International Energy Agency, the industrialised countries' energy watchdog, forecasts oil consumption will surge from a current 86.12m b/d to 88.05m b/d in the last quarter of the year.
Most Opec countries appeared reluctant to endorse any immediate production rise on fears that the credit squeeze may slow down economies and crude oil consumption. They instead want to wait until December, when the impact market turmoil has on crude oil demand will be clearer.
Mohammed al-Hamli, the oil cartel president and United Arab Emirates oil minister, said Opec's supply was sufficient and blamed bottlenecks at refineries and geopolitical tension for the high prices.
Iraq and Indonesia supported an immediate production increase. Hussein Shahristani, Iraq oil minister, said ahead of the meeting that Opec "will be discussing if there is a need to increase its production slightly to meet the increased demand".
Officials said one solution was for Opec to say it would increase output at its next ministerial meeting, in December. That might reassure the market while providing it with enough room to manoeuvre in case crude oil demand faltered.
"It may be difficult to reach a consensus for an immediate output increase, but most countries agree on sending a signal that more oil would be pumped at later stage," an Opec official said.
Paul Horsnell of Barclays Capital in London, said complete inaction by Opec at last week's meeting "would most likely not only mean new all-time highs being set, but highs well into the $80 and perhaps beyond".
.......................................
— FT Syndication Service