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OPEC pumping oil at the fastest rate in 52 years Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000085&sid=avzdd.m8Bhrk&refer=europehttp://quote.bloomberg.com/apps/news?pid=10000085&sid=avzdd.m8Bhrk&refer=europe
OPEC May Fail to Cut Oil Price Below $40 for Months (Update1)
Sept. 13 (Bloomberg) -- OPEC, pumping oil at the fastest pace in 25 years, has little ammunition left to reduce near- record prices at a meeting this week, and some analysts are forecasting crude above $40 a barrel for the rest of the year.
Ministers of the Organization of Petroleum Exporting Countries, producer of about 40 percent of the world's oil, gather Sept. 15 in Vienna to consider raising the group's official output limits and price targets. OPEC is ignoring a current quota of 26 million barrels a day, producing 8.1 percent above that in August, according to Bloomberg estimates.
``The problem now is not one that OPEC can solve,'' said Leo Drollas, deputy executive director of the Centre for Global Energy Studies in London. He does not expect OPEC to change quotas and predicts New York oil will sell for $41 or $42 a barrel by yearend. ``Demand is the key variable. OPEC's got no more capacity to speak of.''
Crude futures last month reached $49.40 a barrel in New York, the highest since trading began in 1983, because of record increases in demand, led by China and the U.S., and threats to supply in Iraq and Russia. Rising energy costs were part of the reason for slowing economic growth in the U.S., Europe and Japan in the second quarter.
OPEC's benchmark oil price has exceeded the group's official target of $22 to $28 a barrel for the past nine months. OPEC President Purnomo Yusgiantoro said last week the group had at least three proposals to increase the band.
Higher Quotas
The cartel also will consider increasing quotas to match actual supply, Purnomo said. Some members may resist. Iran, OPEC's second-largest producer after Saudi Arabia, says the group is pumping too much. The other members are Algeria, Indonesia, Iraq, Kuwait, Libya, Nigeria, Qatar, the United Arab Emirates and Venezuela.
``OPEC is considering two things: increasing the price band, probably by $5, and increasing the quotas, probably by 1 million barrels a day,'' said Adam Sieminski, Deutsche Bank AG's oil strategist in London, who forecasts average prices of $42.30 a barrel this quarter and $37 in the fourth. ``I don't think it makes any difference at all to the near-term price situation.''
Sieminski expects OPEC to leave both the price range and quotas unchanged.
OPEC supplies rose 360,000 barrels a day to an average of 29.92 million a day in August, reaching a 25-year high for a second month, according to Bloomberg data. The 10 members with quotas, all except Iraq, pumped 28.1 million barrels a day, 2.1 million more than the target.
Rising Inventories
A potential increase in inventories may prompt Saudi Arabia and other OPEC members to reduce supplies in coming months, the International Energy Agency, a Paris-based adviser to 26 oil- consuming countries, said in a report last Thursday. It said oil markets are ``well supplied.''
Saudi Arabia, Iran and Iraq are the world's three largest holders of oil reserves.
Most members favor increasing OPEC's average target price, set in March 2000, by one-fifth to $30 a barrel, Hossein Kazempour Ardebili, Iran's OPEC representative, said last week. The price, based on seven crude oils known as the OPEC basket, has averaged $34.24 this year and stood at $38.74 on Thursday.
Higher oil prices helped produce a record U.S. trade deficit of $55 billion in June, slowing second-quarter growth in the world's largest economy to 0.7 percent, the Commerce Department said in July. Japan's economy grew 0.3 percent in the period and the euro region expanded 0.5 percent, both slower than in the previous three months.
Wall Street analysts have been raising oil-price forecasts all year to keep up with rising demand, real and threatened supply disruptions, shrinking spare capacity and buying by speculators in futures markets.
From $35 to $44.60
Merrill Lynch & Co. now forecasts that New York oil futures will average $35 a barrel in the fourth quarter. Barclays Capital's estimate is $44.60, JPMorgan Chase & Co.'s is $41 and Credit Suisse First Boston predicts $40. A Bloomberg survey of 20 banks and securities firms on July 7 showed a median forecast of $33.66.
OPEC and the oil industry must invest more in exploration and developing new capacity, according to investors and policy advisers including the IEA. Eivind Reiten, chief executive officer of Norsk Hydro ASA, Norway's second-largest oil company, said Aug. 24 at a conference in Stavanger, Norway, that producers are likely to restrain spending on drilling until they are convinced higher prices are here to stay.
OPEC holds 300,000 barrels a day of spare capacity, less than 1 percent of world demand, excluding capacity that may be available for a brief period, the IEA estimates. The margin may support prices as demand nears its annual peak next quarter.
``We're going to be heading into the fourth quarter with a very thin level of OPEC capacity,'' said Kevin Norrish, an energy analyst at Barclays Capital in London. ``That is not a recipe for lower prices.''
To contact the reporter on this story:
Alex Lawler in Vienna through the London newsroom
2077 or at alawler@bloomberg.net
To contact the editor for this story:
Tim Coulter in London tcoulter@bloomberg.net
Last Updated: September 12, 2004 19:57 EDT
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