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OPEC powerless to stem oil price surge { May 12 2004 } Original Source Link: (May no longer be active)
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OPEC Powerless to Stem Oil Price Surge
Wed May 12, 2004 01:05 PM ET
By Andrew Mitchell
LONDON (Reuters) - Oil prices burst to new 13-year highs above $40 a barrel on Wednesday on concern that OPEC may not pump enough oil to meet rapidly accelerating world oil demand.
A fresh fall in U.S. gasoline stocks reinforced concern that U.S. refiners will not be able to make enough of new gasoline grades for peak summer holiday driving demand.
U.S. light crude (CLc1: Quote, Profile, Research) hit a peak at $40.77 a barrel, less than 40 cents off the $41.15 all-time high for New York crude futures, reached in October 1990 after Iraq invaded Kuwait. London Brent crude (LCOc1: Quote, Profile, Research) was up 36 cents at $37.72 a barrel.
Importing nations are increasingly worried about the economic fallout of higher energy costs. The price spike has come during the second quarter, when world oil demand is at its lowest seasonal ebb, raising concerns about prices later in the year as demand rises again.
Tight U.S. fuel inventories have driven oil's long rally. The U.S. Energy Information Administration said on Wednesday gasoline stocks dropped 1.5 million barrels last week to 202.5 million, nearly 4 percent below the five-year average.
"This draw in gasoline stocks will keep this bull market alive," said Jim Ritterbusch of Ritterbusch and Associates in Galena, Illinois. "Demand is just stronger than expected. We're still running more than 3.2 percent year over year."
Oil prices have rocketed nearly $8, or 24 percent, since the start of the year as stronger-than-expected energy consumption among industrialized nations bolsters explosive demand growth in China.
EXPLOSIVE GROWTH
World growth forecast represents the largest absolute increase in global oil demand since 1988, the International Energy Agency, adviser on energy to 26 industrialized nations, said in its monthly Oil Market Report.
OPEC President Purnomo Yusgiantoro of Indonesia said on Wednesday the cartel is already pumping more than two million barrels daily in excess of official supply limits in a bid to cool world oil prices.
"We have not discouraged our members from producing more because we want to do everything we can to stabilize prices," Purnomo was quoted as saying in a statement released from OPEC headquarters.
The statement will underline concerns in the market about how much actual extra oil OPEC will release should it decide to lift production quotas when ministers meet on June 3 in Beirut.
Ministers are considering raising official production limits from 23.5 million bpd after Saudi Arabia proposed lifting quotas by at least 1.5 million bpd.
U.S. and European refiners said on Wednesday that Saudi Arabia has offered to increase crude supply in June, mainly of heavy grades which are less effective for making gasoline.
"OPEC seems to have been stung into making reassuring noises, guaranteeing supply to customers and abandoning any pretence of production cuts in line with target," the IEA's report said.
Supply outside OPEC is also failing to meet growth expectations, despite rising volumes from Russia, raising the requirement on OPEC for extra crude, the IEA said.
"The welcome resurgence in economic activity brings to the fore the issue of securing the necessary supplies to sustain the recovery," the IEA's report said.
The IEA said OPEC holds around 2.5 million bpd of spare capacity -- just a three percent cushion for the 80 million bpd world market, nearly half in Saudi Arabia.
Supply security worries from the Middle East have also fired up prices. Iraqi oil exports from the Basra Oil Terminal are still reduced to 1.1 million bpd after pipeline sabotage at the weekend.
A return to normal flows of 1.6 million has been delayed until Thursday. The weekend attack came just two weeks after suicide bombers attacked tankers at the terminals.
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