LONDON, 17 June 2005 — World oil prices continued to rise yesterday after surging the day before when official data showed a drop in US crude inventories, sparking supply worries despite OPEC’s decision to increase its daily output quota. New York’s main contract, light sweet crude for delivery in July, rose 53 cents to $56.10 per barrel in early deals. The contract had surged to an intra-day high of 56.75 dollars on Wednesday.
In London, the price of Brent North Sea crude oil for delivery in August rose 35 cents to $55.59 per barrel. The July contract expired Wednesday at $54.50. “Attention in the end has focused on the US inventory data because excluding Saudi Arabia, nobody really thinks that the other OPEC members have actually got any capacity to put their output higher,” Seymour Pierce analyst Richard Slape said. “All they’re doing is legitimizing the current overproduction.”
Oil prices had jumped briefly to two-month high points on Wednesday after the US Department of Energy (DoE) said crude oil reserves fell 1.8 million barrels to 339 million in the week ending June 10. The data were released a few hours after the Organization of Petroleum Exporting Countries’ 11 members agreed to raise its production ceiling by 500,000 barrels per day (bpd) on July 1 and said it might repeat the move by September.
The decision, at the group’s meeting in Vienna, was motivated by high prices and forecasts of “strong global demand during the remainder of the year”, it said in a communique.
However, traders reacted little to the move as OPEC’s quota increase was largely seen as a symbolic gesture because the cartel was already pumping more oil than its official ceiling of 27.5 million bpd set before Wednesday’s increase.
Despite the DoE reporting a rise in weekly US distillates stockpiles, the market remains worried about a possible heating fuel shortage during the fourth quarter. “Crude stocks are still about 10 percent higher than they were a year ago, but distillate stockpiles are barely above their mark at this time last year, worrying some dealers who say heating oil stocks may not build adequately before peak-demand winter” in the Northern Hemisphere, analysts at the Sucden brokerage firm said.
OPEC ministers said a capacity crunch on crude supplies and refinery bottlenecks meant its latest deal on higher output limits was unlikely to cut oil prices. Speaking after a Wednesday meeting, ministers said they were already making every effort to topple prices from $55 a barrel.
“Patients need medicine but this is not the right medicine,” Libyan Energy Minister Fathi Bin Shatwan told Reuters. “The problem is not a problem of supply, it’s a problem of refining.”
Venezuela’s Oil Minister Rafael Ramirez said Wednesday’s agreement, lifting output quotas by 2 percent, could prove counter-productive because it highlighted OPEC’s lack of spare capacity. “The problem with the price is nothing to do with supply,” Ramirez told reporters. “I think what the market is saying is that the more we raise the supply ceiling the less flexibility we have in production capacity.”
