ABU DHABI, 4 May 2004 — OPEC might raise its official oil supply limits to cool off prices and replenish lean stockpiles during the third quarter, the United Arab Emirates’ oil minister said yesterday.
The organization, under pressure from the United States and other major consumers to hoist output quotas, is pumping well in excess of official limits which it cut from April 1 to counter lower seasonal demand in the second quarter.
“The organization does not mind increasing production and changing the output ceiling if there is a need, and any alteration would take into account price levels and strategic stockpiles,” Obaid ibn Saif Al-Nasseri said.
OPEC oil minsters meet on June 3 in Beirut to discuss world oil markets, which have seen prices for US crude surging above $37 a barrel and international benchmark Brent on Friday hitting its highest level for 3-1/2 years at $35.
OPEC has been pumping above formal quotas to prevent crude oil prices spinning out of control, but a relentless bull trend continues due to Middle East tensions, low US stocks and rising Chinese demand.
Kuwait’s Oil Minister said on Monday that strong oil prices would only encourage producers to pump beyond official limits.
“I don’t think at this price that anyone will cut. I did not follow up the oil intelligence for March and April, but I don’t think everybody will cut with these prices,” Sheikh Ahmad Al-Fahd Al-Sabah told Reuters.
The UAE oil minister said the organization may also study proposals to raise its official $22-$28 OPEC price band.
“Some OPEC members have proposals about (raising the $22-$28 price band) but have not submitted them officially and perhaps they will be discussed at the Beirut meeting,” Nasseri said.
The OPEC price basket has been over its target all this year.
OPEC ministers will also have the opportunity to discuss market conditions at a gathering of oil producers and consumers in Amsterdam on May 22-24, Nasseri said.
Meanwhile, the International Energy Agency warned yesterday high oil prices could threaten the world economy by sparking a surge in inflation, spurring rising unemployment and stifling growth.
“Oil prices still matter to the health of the world economy,” the Paris-based agency said in a study on the impact of a new oil shock.
“Higher oil prices since 1999 — partly the result of OPEC supply-management policies — contributed to the global economic downturn in 2000-2001 and are dampening the current cyclical upturn,” it added.
Simulating the impact of a $10 rise in oil prices from $25 per barrel to $35 for a sustained period, the agency found that the leading industrialized countries belonging to the OECD would as a whole have lost 0.4 percent of gross domestic product in the first two years.
Looking back at the recent economic downturn, the IEA said, “world GDP growth may have been at least half a percentage point higher in the last two or three years had prices remained at mid-2001 levels.”
The IEA study, made in conjunction with the Organization for Economic Cooperation and Development and the International Monetary Fund, found that developing countries were particularly hard hit by surging crude prices.
Detailing the impact of high oil rates, the IEA warned that economies would struggle with problems ranging from higher inflation and interest rates to slumping stock markets. “Higher oil prices lead to inflation, increased input costs, reduced non-oil demand and lower investment in net oil importing countries. “Tax revenues fall and the budget deficit increases, due to rigidities in government expenditure, which drives interest rates up,” it said.
Slower growth would in turn crimp corporate earnings, causing stock markets to tumble. While the global economy buckled in the wake of the 1973 and 1979 oil shocks, many analysts say the world is less vulnerable now because oil sources have been increasingly diversified away from OPEC producers.
OPEC now accounts for around 32 percent of the global market, with other countries such as Russia, Norway, Canada, Mexico and Angola becoming major players. The use of natural gas and other so-called “green” sources of energy have also made big strides since the 1970s.
The IEA, which was created amid the first oil crisis to coordinate energy policy among 26 consuming nations, has voiced concern about current rates and the possibility OPEC might expand its price band, which ranges between $22 and $28 a barrel.