Some relief foreseen from OPEC output rise

It's unlikely to fully offset loss of Venezuela oil

January 14, 2003|By BLOOMBERG NEWS

VIENNA, Austria - OPEC's agreement to boost output quotas by 6.5 percent might provide little relief from a rally that sent oil prices to a two-year high, analysts said yesterday.

OPEC members agreed Sunday to raise the group's daily production ceiling by 1.5 million barrels, or 6.5 percent, to 24.5 million barrels a day starting Feb. 1.

Actual output might rise less because many members are pumping near their limit, and a six-week strike has crippled supplies from Venezuela, OPEC's third-largest producer.

"It's just about enough to stop the price rise," said Adam Sieminski, oil strategist at Deutsche Bank AG. "OPEC's decision is in the right direction, but it doesn't appear to be replacing all the Venezuelan oil."

Oil prices, which surpassed $33 a barrel in New York last week, rose 58 cents, or 1.8 percent, to $32.26 yesterday on the New York Mercantile Exchange. In London, the February Brent crude-oil futures contract rose 53 cents, or 1.8 percent, to $30.20 a barrel on the International Petroleum Exchange.

Last year's price rise was the second-largest in the past two decades, leading importers from the United States to India to lobby OPEC for more oil to ensure that rising energy costs don't harm the world economy.

Ministers from the Organization of Petroleum Exporting Countries said the increase in production would reduce their benchmark oil price by $2 or more, causing it to fall within the group's target range of $22 to $28 a barrel. OPEC's index was at $29.86 on Jan. 10, the most recent price.

OPEC ministers declined to specify how many additional barrels the new accord might bring to the market. Saudi Oil Minister Ali al-Naimi indicated yesterday that OPEC members were pumping extra supplies to prevent shortages.

"Prices will dip on this, but I think the market will remain pretty tight, because a 1.5 million-barrel increase in quotas won't give you 1.5 million barrels of extra production," said Steve Turner, an oil analyst at Commerzbank Securities.

"It leaves the market looking relatively tight. Prices are likely to stay toward the top end of the [OPEC] price band."

OPEC ministers are concerned that rising prices could stunt growth in energy demand and encourage development of non-OPEC oil fields.

"The main purpose of this agreement is to push prices within OPEC's band, and this agreement should do that," Alvaro Silva Calderon, OPEC secretary-general, said in an interview Sunday.

The White House applauded OPEC's move. "It will increase global energy supplies and promote economic growth," White House spokesman Ari Fleischer said. "The president views this as a welcome step" toward addressing the lack of supply from Venezuela, he said.

Oil ministers said yesterday that the agreement was the best way to lower prices.

"It was a compromise between demands for more and demands for less," said United Arab Emirates Oil Minister Obaid Bin Saif al-Nasseri, speaking in Abu Dhabi, the UAE capital. He called the decision "adequate."

OPEC members met because of an informal agreement to consider increasing output when its benchmark index stays above the target range for 20 consecutive days. Friday was the 18th trading day above the range.

The Venezuelan government is struggling to maintain basic services as the six-week strike slows oil exports and production. Venezuelan oil production plunged 2.3 million barrels a day in December to an average 700,000 barrels a day, according to Bloomberg estimates.

Because of the strike, U.S. crude oil inventories fell to 275.5 million barrels as of Jan. 3, according to the American Petroleum Institute. Thats near an October low of 273 million barrels, which was the smallest inventory since 1976.

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