BEIRUT, 2 June 2004 — OPEC looks set to hike oil production at a meeting here this week but officials and analysts yesterday expressed doubts this would calm the worldwide fear of a supply disruption that sent prices skyrocketing.
Kuwaiti Energy Minister Sheikh Ahmad Fahd Al-Sabah said on arrival in Beirut his country was ready to accept an increase in OPEC’s oil production ceiling to 26 million barrels per day (bpd), from the current 23.5 million bpd.
And Qatar’s Energy Minister Abdullah ibn Hamad Al-Attiya told AFP that OPEC has reached “near consensus” to raise its crude oil production in a bid to bring prices under control.
Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali Al-Naimi gave an assurance that the organization would “do its best to make the fundamentals right.”
But oil prices soared yesterday. Crude oil futures in New York hit an all-time high, topping $42, in the first trades since the weekend attacks in Saudi Arabia.
OPEC officials and analysts have stressed the fundamental need of the market was not more oil, but assurances that supply from the Middle East, which controls 66 percent of the world’s crude oil reserves, will not be disrupted.
Sabah stressed that soaring prices were the result of “geopolitics.” Attiya said the “fear factor” was adding as much as $6 per barrel to the prices of crude.
Analysts concurred. “Actually there is no shortage at the present moment ... it’s a fear factor,” said Ong Eng Tong, an independent energy consultant based in Singapore.
The fear of a disruption is all the more worrisome that it comes as economic growth in the United States and China is pushing up global demand. OPEC controls about one third of the global oil supply.
The International Energy Agency (IEA) forecast global oil demand to grow by two million bpd this year, which would be the highest annual increase since 1998.
OPEC’s actual production is estimated at 25.5-26 million bpd, with most members already pumping at their maximum.
OPEC information department head Omar Ibrahim said the organization has the ability to put an extra three million bpd on the market, mainly from Saudi Arabia but also from Kuwait and the United Arab Emirates.
Amman-based Jordinvest CEO Henry Azzam referred to security concerns in other OPEC states. “Political troubles in Venezuela, Nigeria and Indonesia have always undermined market confidence,” he wrote in Beirut’s Daily Star. Sabah said OPEC should not suspend its quota system, even if members are producing above the ceiling in order to appease the market.
He said $30 per barrel would be a “fair price” but added that OPEC should not raise its target price band of $22-$28 before a careful study of such a move.
Meanwhile, leading oil exporters outside the Middle East have pledged to boost production to offset soaring world prices - but it could be months or years before Russia, Nigeria and Mexico really manage to open their taps.
Those three nations are the world’s Nos. 2, 7 and 9 oil exporters respectively, according to the US Department of Energy. Building projects to clear pipeline bottlenecks or boost production capacity are still works in progress in all three countries — or sometimes not even out of the talking stage.
In Nigeria, violent attacks on installations in the oil-rich Niger Delta have persistently limited drilling — forcing multinational giants to abandon some wells and pipeline stations entirely.
Visiting Moscow before the Saudi attacks, US Energy Secretary Spencer Abraham said he was puzzled why the market hadn’t already responded more favorably to the three nations’ pledges of increased production.
“(Those pledges) should have a significant impact on world energy prices,” Abraham insisted. But the promises seem a long way from being met.
Mexico promised this month to do its part — but only by next year, when it has finished construction projects to boost capacity. Even then, the country’s immediate output would swell by only 2- to 4 percent.
Nigeria promised an extra 300,000 barrels within 40 days, if the market wanted it.
In Russia, pipelines and port bottlenecks are the problem. Oil exports sent through the state-owned Transneft pipeline already are running at near-maximum capacity.
