OPEC ready to open the oil spigot But ministers say problem is with refining, not crude supply
 
Sep 20, 2005 - International Herald Tribune
Author(s): Jad Mouawad

OPEC delegates said Monday that the group planned to allow its members to provide up to two million barrels a day of extra crude oil "if the market needs it," effectively setting aside the group's two-decade-long quota system in order to tame surging oil prices.

 

The highly unusual decision to put on call an extra 7 percent of production was expected to be formally announced Tuesday, at the end of the group's two-day meeting here. Some oil ministers said the Organization of Petroleum Exporting Countries wanted to show it was doing all it could to help lower oil prices even as they blamed refining shortages for the current situation. Under the proposal, discussed by members in meetings Monday, OPEC producers would provide as much oil as refineries and other buyers ask for, without regard to previous production limits or quotas. The production ceiling, currently set at 28 million barrels a day and shared by all 11 members except Iraq, would theoretically remain unchanged.

 

 

"The crude is available," Ali al-Naimi, the Saudi Arabian oil minister, told reporters in Vienna. "If you want it, here it is." But the attention of oil traders was focused on news that another storm, the 17th named storm of the Atlantic hurricane season, was making its way toward the Gulf of Mexico. These reports pushed crude oil futures on the New York Mercantile Exchange up $4.39 to $67.39 a barrel at the close Monday

 

OPEC's plan, proposed by Sheik Ahmad Fahad al-Ahmad al-Sabah, the group's current president and the oil minister from Kuwait, has the backing of Saudi Arabia, OPEC's largest producer, which would provide 75 percent of the additional oil. Saudi Arabia's commitment to raise its output up to its full limit of 11 million barrels a day from 9.5 million barrels now, was repeated after Hurricane Katrina interrupted oil production from the Gulf of Mexico three weeks ago, sending crude oil above $70 a barrel.

 

But the divergence between the market's focus and OPEC's plans illustrates the group's dilemma. Many delegates here emphasized repeatedly that the real shortfall in energy markets was not one of crude oil but of refining capacity the current inability of refiners to turn oil into sufficient quantities of gasoline and other products like diesel or jet fuel.

 

"The real shortfall is in refineries, especially in the United States," said Abdullah bin Hamad al-Attiyah, the minister from Qatar.

 

Still, he said OPEC hoped to strike a psychological point with oil traders who have been bidding up oil prices over the past two years largely on the assumption that the growth in demand was outstripping the ability of suppliers to bring more oil on the market. That has led to a doubling in oil prices over the past two years. OPEC also wanted to respond to mounting criticism from consuming nations, especially in Europe, who have put pressure for OPEC to act more forcefully. Many are beginning to worry that high oil prices might slow growth and hurt the global economy. According to OPEC's most recent statistics, the group pumps about 28.2 million barrels of oil a day, about a third of global production and 40 percent of global exports.

Since 2003, OPEC producers have increased their output by 10 percent to make up for a 5 percent jump in global oil demand. That increase leaves only one OPEC member, Saudi Arabia, with large spare capacity. According to Sheik Ahmad, the OPEC president, Nigeria, the United Arab Emirates and Libya could provide an extra 400,000 barrels a day by December.

 

To illustrate the availability of oil on the market, many pointed out that the U.S. Energy Department had recently found buyers for only 11 million barrels of crude oil from the country's strategic reserves, just a third of the amount it had put on sale. "It proves there is no need for oil," Attiyah of Qatar said. "There is a need for products."

 

Hurricane Katrina crippled the main U.S. oil and gas production region, sending energy markets into a tailspin. But perhaps of greater concern for energy markets, it caused the shutdown of four major refineries along the Gulf Coast. These refineries, which can process nearly 900,000 barrels a day, or 5 percent of U.S. capacity, are likely to be out of commission for months.

 

Meanwhile, attention was centered on Tropical Storm Rita after the U.S. National Hurricane Center issued a hurricane warning for southern Florida. The concern was that the strengthening storm could hit the Gulf of Mexico at a time when more than half the oil production there still remained shut. Also, if it remains on its current path, the storm could make landfall somewhere along the Texas coast, where many refineries are concentrated.

 

"This storm has put the OPEC meeting into the back seat, and marginalized it," Ray Carbone, an New York Mercantile Exchange oil trader at Paramount Options, told Bloomberg Television. "There is little OPEC can add to the market. The problem is refined products and OPEC is not offering any of those."

 

 


© Copyright 2005 NetContent, Inc. Duplication and distribution restricted.
 

Visit http://www.powermarketers.com/index.shtml for excellent coverage on your energy news front.