OPEC's representatives said Sunday that they were prepared to
increase their oil-production ceiling while warning that higher fuel
costs were the result of shortfalls at refineries and thus beyond their
control. Still, as they prepared to meet here for the first time since
Hurricane Katrina roiled energy markets three weeks ago, oil ministers
from Saudi Arabia and Kuwait indicated that they favored an increase of
500,000 barrels a day in the cartel's official production quota. That
option, which might be raised to as much as one million barrels a day,
comes in response to pressure from consuming countries that are
increasingly concerned about the impact of high prices on their
economies.
But it is unlikely that lifting the the Organization of Petroleum
Exporting Countries' quota will bring much new supplies to the market.
For the group, as for most oil analysts, the bottleneck in energy
supplies comes from the inability of refiners to process enough oil to
meet demand, not from a shortage of crude oil. Even if OPEC increased
its production, it is unlikely to find many buyers.
The refining crunch was worsened after Hurricane Katrina disabled
four major refineries along the Gulf of Mexico which together account
for 5 percent of U.S. refining capacity putting them out of commission
for months.
"The constraints are not on the supply side," Ali al-Naimi, the Saudi
oil minister, said Saturday in Vienna. "The constraints are downstream.
Katrina damaged some infrastructure, and that's why people aren't taking
crude."
OPEC's ceiling is currently set at 28 million barrels a day,
excluding output from Iraq. According to its most recent statistics, the
group is actually producing closer to 28.2 million barrels a day. So the
oil ministers are left to perform a delicate balancing act as they start
their two-day meeting on Monday, providing some reassurance that they
are serious about keeping markets well supplied while realizing they
cannot do much to rein in prices.
The difficulties of refiners was apparent last week when the U.S.
Department of Energy said it had sold only 11 million barrels from
strategic petroleum reserves, only a third of the 30 million barrels it
had initially pledged.
"I feel the market is well supplied," said Hammouda el-Aswad, the
OPEC governor for Libya. "I don't see why OPEC should be responding to
pressure when there is no need for more oil on the markets."
Some officials, including representatives from the United Arab
Emirates and Qatar, said that an increase in the production ceiling
might not be necessary because demand was weakening. After the hurricane
punched through America's main energy hub, disrupting production,
crippling refiners and pushing prices above $70 a barrel, little was
heard from OPEC, whose 11 members pump more than a third of the world's
crude oil. Instead, consuming nations had to dip into their own reserves
to make up for the production shortfall from the Gulf of Mexico. To put
a lid on prices, the Bush administration took the rare step of tapping
into U.S.
strategic stocks. The International Energy Agency, which usually
provides advice to 26 industrialized countries, used its emergency oil
plan for only the second time in its 29-year history. Then OPEC said it
was ready to "fill any supply shortfall," while Saudi Arabia said it
would open the taps. But OPEC has little more to give. Since 2003, it
has cranked up output by 10 percent, or 2.6 million barrels a day, to
make up for a 5 percent jump in global oil demand. That increase leaves
only one member with any spare capacity: Saudi Arabia, which is pumping
about 9.5 million barrels a day. It is estimated to have another 1.5
million barrels a day of extra capacity but that crude is unpopular with
buyers because it is consists of a viscous and sulfur-rich variety that
refiners have trouble processing.
European leaders have been particularly vocal in recent weeks about
the impact of high prices. The European commissioner for energy, Andris
Piebalgs, took the unusual step of meeting with Sheik Ahmad Fahad
al-Ahmad al-Sabah, the oil minister from Kuwait who is currently
president of OPEC, on Sunday in Vienna to share his concerns. "OPEC has
to respond to a political message with a political signal of its own,"
said Vera de Ladoucette, an energy analyst with Cambridge Energy
Research Associates. "They are not irrelevant. But under the present
circumstances, they seem a little powerless."