Record oil prices 'irrational' given fundamentals

London (Platts)--11Aug2004

Despite limited spare OPEC production capacity and supply-side concerns
continuing to fuel world crude prices, the crude market supply is running
ahead of demand and a supply buffer remains, the International Energy Agency
said Wednesday. 

In an editorial comment entitled "Irrational Exuberance," the
IEA said although the oil market is still tight, OPEC production continues to
increase, stocks are running at the middle of their five year average and
non-OPEC production is expanding by over 1.2-mil b/d by year-end. "Limited
spare production capacity combined with security warnings and headline news
about Russia, Iraq, Venezuela, China and monthly employment, industry activity
and confidence in statistics are propelling the market," the IEA said in it
latest monthly report. "The market is tight, production and infrastructure
capacity is less than desired...but does this justify $45 oil?" OPEC's
"effective" spare capacity, excluding Iraq, Nigeria, Indonesia and Venezuela,
dropped to just 510,000 b/d in July from 620,000 b/d in June, the agency said.

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