OPEC UPDATE

OPEC UPDATE

OPEC crude output up 730,000 b/d in July
Saudi production jumps to 9.4-mil b/d, Platts survey finds

Benchmark oil prices in the US and London hit fresh highs Aug 3 after OPEC's Indonesian President Purnomo Yusgiantoro said the cartel could not increase supply in the short term. Purnomo, who is also Indonesia's oil minister, said OPEC heavyweight Saudi Arabia, the world's largest holder of spare output capacity, needed time to bring additional volumes on stream.

Front-month September crude futures on the NYMEX broke above $44/bbl to reach a new all-time high of $44.24/bbl after Purnomo's remarks, up from Aug 2's close of $43.82/bbl. In out-of-hours trading on London's IPE, September Brent reached an intra-day high of $40.45/bbl, up 48 cts/bbl on the day and marking the highest level traded for Brent futures since October 1990.

"The oil price is getting higher. It's crazy," Purnomo said. Asked whether a shortage of supply was causing prices to rise, Purnomo said: "Yes, There is no supply." Fears that Russia's Yukos could halt its crude output were also a factor, Purnomo said.

Purnomo said Saudi Arabian oil minister Ali Naimi had said Aug 2 that Riyadh could produce more oil but not immediately. "Yesterday, Naimi said that his country could produce more oil but it would take time," Purnomo said. "The most important thing, Saudi Arabia has told me that they will speed up their production," he said. Furthermore, he added, Iraq was struggling to meet its output targets. "So what we can do?" he said. Despite this, Purnomo said OPEC would make efforts to ease prices. "OPEC will take action to anticipate the oil price getting decreased. OPEC's ministers will meet and discuss oil supply in our next meeting in September," he said.

The Indonesian official was hopeful that prices could come down from their current highs. Asked if there was an opportunity for prices to fall, he said: "Yes, there's an opportunity. It depends on supply and demand and also non-fundamental factors. We will try to meet the demand." "But if the oil price is caused by non-fundamentals factors we can't do anything," he added.

Prices have set a succession of fresh highs in recent weeks, with NYMEX crude settling at an all-time high of $43.82/bbl Aug 2 after warnings a day earlier that terrorists could be planning attacks on key financial centers in the US. As well as the concerns about terrorism, worries about the security of supply, tightening spare output capacity and the extent of oil demand have also contributed to the market strength.

OPEC has seemingly been able to do little to halt the oil price surge, despite raising its ten-member output ceiling by 2-mil b/d from Jul 1 and by a further 500,000 b/d from Aug 1. OPEC's basket of seven crudes stood at $39.04/bbl Aug 2, over $11/bbl above its stated target range of $22-28/bbl.

Updated: Aug 11, 2004

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