OPEC to boost oil production a bit
Copyright 2000, Associated Press
Wednesday, June 21, 2000
OPEC Secretary General Rilwanu Lukman from Nigeria talks to journalists after an informal meeting of OPEC oil ministers today.
OPEC members agreed today to boost official crude oil production by 3 percent, Qatar's oil minister said, a move unlikely to be enough to provide motorists with relief from record-high gasoline prices in the United States.
After an unusually brief 90-minute meeting this afternoon in Vienna, Abdullah bin Hamad Al Attiyah, the minister from Qatar, said the increase would be 708,000 barrels daily.
The increase in production will begin in July, according to Ali Naimi, oil minister for Saudi Arabia, which is the world's biggest producer.
Oil prices were rising on world markets and analysts said they expected that the increased production limits would have little substantial impact on gas prices through the summer months.
The main U.S. crude oil, West Texas Intermediate, rose 70 cents by this afternoon on the New York Mercantile Exchange, where contracts for August delivery changed hands for $31.35 a barrel. On Tuesday, when the July contract expired, the price for oil for short-term delivery closed at a 3 1/2-month high of $33.05 a barrel.
On the International Petroleum Exchange in London, the August contract for Brent crude from the North Sea was up 38 cents at $29.40 a barrel this afternoon.
Analysts said that an increase of 700,000 barrels daily would only add an estimated 200,000 fresh barrels of crude to the market. That's because many of OPEC's 11 members are already exceeding their quotas by a total of roughly 500,000 barrels a day.
In addition, oil produced in July won't immediately reach markets in the United States because of the time it takes to ship Middle East oil.
As a result, analysts said that a 3 percent increase in OPEC's output might cap current high prices for crude but would do little to ease prices for gasoline in the United States.
Roger Diwan, an analyst at The Petroleum Finance Company, a consultancy based in Washington, said that an increase of 700,000 barrels a day could "remove some of the sting" to oil importing nations, causing U.S. oil prices, for example, to drop to between $27 and $28 per barrel. As a rough rule of thumb, each $1 drop in the price of a 42-gallon barrel of oil is equivalent to a 2 1/2 cent decline in a gallon of gas.
The ministers are meeting at a time when pressure is building in the United States for relief from sharply rising gasoline prices. The national average price of regular unleaded gas was $1.681 this week, up a nickel from the previous week, according to the Department of Energy, representing a fourth straight week of record highs.
"I think the U.S. gas prices are going to continue to go up this summer," said Falah Aljibury, an industry consultant based in Alamo, Calif.
American refineries already are producing almost all the gasoline they can, and U.S. gas inventories are at their lowest levels in several years, he said. By the time ships containing fresh Middle Eastern crude reach U.S. ports, the summer driving season will be almost over.
Hopes for even greater OPEC production were tempered by the group's limited ability to pump more oil.
Only Saudi Arabia, Kuwait and the United Arab Emirates have enough spare capacity to pump large amounts of new oil, said Leo Drollas, chief economist of the Center for Global Energy Studies in London.
OPEC pumps about 35 percent of the world's oil. Key non-OPEC producers such as Mexico have cooperated with the cartel, agreeing in March, for example, to boost their output in line with OPEC.
Under pressure from the United States, nine OPEC members agreed in March to raise output in a successful effort to trim crude prices, which had almost tripled over the previous year.
The March agreement excluded Iraq, which never was part of the production cuts last year that sent prices surging. Iran participated unofficially in that increase although it refused to sign the formal agreement out of anger at what it saw as heavy-handed U.S. intervention.
OPEC's official quota, not including Iraq, is 24.69 million barrels a day.
Iraq urged oil producers not to feel pressured to boost production, even as its own output has been on the rise to raise badly needed cash.
"Iraq will not accept any increase in oil production during the OPEC meeting under any pressure," Oil Minister Amer Mohammed Rashid was quoted as saying Wednesday in the Iraqi al-Thawra daily. Rashid sent a subordinate to the OPEC meeting.