OPEC May Reduce Quotas; Meeting Is Today
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The Organization of Petroleum Exporting Countries may agree to offer customers every barrel of oil that members can produce, effectively suspending the group’s quota system that has regulated supply for about two decades.
OPEC has 2 million barrels of production capacity idle, the OPEC president and Kuwaiti oil minister, Sheikh Ahmad Fahd al-Sabah, said in an interview in Vienna, where OPEC meets today. One proposal is for members to offer that full amount to buyers, he said. The other is for an increase in the quota of 500,000 barrels a day, or 1.8%.
“We can offer the 2 million barrels of extra capacity to the market, available for whoever wants to have it,” Sheikh Ahmad said yesterday. “Maybe this will be better” than the quota increase. Both ideas are under consideration, he said.
Oil prices more than doubled in the past two years and reached a record $70.85 a barrel on August 30 after Hurricane Katrina sank rigs and shut refineries along the Gulf of Mexico. American gasoline prices at the pump this month reached a record $3 a gallon, on average, while consumers in France and Britain protested over rising fuel costs.
Saudi Arabia’s oil minister, Ali al-Naimi, said on Saturday he supports a higher production quota, a position followed yesterday by his counterparts from Nigeria, Algeria, and Qatar. The oil ministers for the United Arab Emirates, Mohamed bin Dhaen al-Hamli, and Venezuela, Rafael Ramirez, said such a decision may not lead to lower gasoline prices because of bottlenecks in the refining system.
OPEC will start its two-day meeting today to deliberate an increase in the official output ceiling, now at 28 million barrels a day for the members outside of Iraq. Those members produced 28.55 million barrels a day last month.
“The market is very well supplied,” the United Arab Emirates’s Mr. al-Hamli told reporters yesterday in Vienna. “If the quota goes up then what difference would that make? We already produce 500,000 barrels a day above the quota.”
Saudi Arabia’s Mr. al-Naimi said on Saturday he already has offered to produce at 11 million barrels a day, its full capacity. The nation is pumping at about 9.5 million barrels a day now.
“We have had no response whatsoever” to the offer of 11 million barrels a day, Mr. al-Naimi said.
OPEC was founded in 1960 in Baghdad by oil producers Saudi Arabia, Iran, Kuwait, Venezuela, and Iraq. OPEC awareness grew in the 1980s of a need to control supply following a collapse in prices after the market’s surge of the 1970s, and the quota system was introduced.
Mr. Ramirez of Venezuela said an OPEC decision for higher quotas may not lead to lower prices at the pump.
“It won’t make a difference,” he said yesterday in Vienna.
Outside OPEC, consuming nations in the International Energy Agency this month organized their second release of emergency stockpiles in the group’s existence in a bid to relieve shortages brought on by refinery shutdowns from Hurricane Katrina.
An increase of 500,000 barrels would boost OPEC’s formal production quota to 28.5 million a day. The IEA estimates spare capacity outside of Iraq at 1.39 million barrels a day, with about two-thirds of the total, or 940,000 barrels, in Saudi Arabia, and another 130,000 barrels left unused in Iran. Bonga, a Nigerian field planned to pump 220,000 barrels a day, is slated to come on stream in the fourth quarter.
A senior energy strategist at Mer rill Lynch, Francisco Blanch, expects oil to average $65.50 next year because Hurricane Katrina “has acted as a true supply shock to global energy markets.” Forecasts range as high as Canadian Imperial Bank of Commerce’s chief economist, Jeffrey Rubin, who predicts an average $84.
OPEC this week lowered its forecast for growth in oil demand for a fifth month, saying consumption in 2005 will grow by 1.42 million barrels a day, or 1.7%, to 83.49 million. That’s 160,000 barrels a day less than OPEC estimated last month. Next year, demand will grow by 1.52 million barrels a day, 100,000 barrels less than previously forecast, OPEC said.
“I will support whatever we can do to stabilize the oil market,” Abdullah bin Hamad al-Attiyah told reporters yesterday in Vienna. “Is there any demand for crude oil? The answer is no.”
OPEC members including Iraq have increased production for seven straight months, pumping 30.38 million barrels of crude a day in August, according to Bloomberg estimates, disregarding the quotas. That was the highest output since October, when members pumped 30.5 million barrels a day, the most since 1979.
Three of the last five OPEC quota increases were 500,000-barrel increments.