BEIRUT, 4 June 2004 — OPEC agreed yesterday to raise output by two million barrels a day, at the bottom end of expectations, but made the impact it was hoping for as oil prices sank. The pact among the 11-member Organization of the Petroleum Exporting Countries promised to add a further 500,000 barrels a day from Aug. 1.
“It will send a very, very strong signal to the market,” said Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi. He said the extra August increment was not negotiable on the downside and could even be altered higher.
“It’s a good agreement, we will be able to test the impact of the policy on the oil market before we meet again in July,” said Qatar Oil Minister Abdullah Al-Attiyah. OPEC meets again on July 21.
At first sight the deal lifting formal group output limits by eight percent to 25.5 million barrels daily from July 1 was a disappointment for those expecting OPEC to deliver more. But oil prices fell on view that OPEC’s core Gulf producers are serious about cheaper oil. By 1800 GMT US crude was off $1.31 a barrel at $38.65 a barrel.
“This is the first time in two years that OPEC has set quotas at a level that reflects underlining forward demand for their oil,” said Marshall Hall of London’s Energy Market Consultants.
“We think prices could come off $5 a barrel in 30 days because the Saudis, the Kuwaitis and the Emirates will produce enough to ensure prices go down.”
The United States applauded the agreement, saying sufficient supplies were critical to sustaining economic growth.
“This welcome action demonstrates that producers are taking concrete and immediate steps to address the global oil supply needs,” said White House spokesman Claire Buchan.
Delegates said the pact was a compromise between Saudi Arabia and countries like Iran and Venezuela which feared a Saudi proposal for an immediate 2.5 million increment could trigger a big price collapse.
But the official details will make little difference to actual supplies from the group that controls more than half the world’s oil exports.
