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."
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