| Oil boils near record high OPEC helpless { May 20 2004 } Original Source Link: (May no longer be active) http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5204888http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5204888
Oil Boils Near Record High, OPEC Helpless Thu May 20, 2004 07:18 AM ET
By Richard Mably LONDON (Reuters) - World oil prices bubbled back close to record highs on Thursday for fear that OPEC cannot cope with rising fuel demand fired by world economic expansion.
U.S. crude futures gained 15 cents to $41.65 a barrel, just shy of Friday's $41.85, an all-time high in the 21-year history of the New York Mercantile Exchange contract. London Brent rose 18 cents to $38.08 a barrel.
Prices have rebounded strongly from a reversal earlier this week that raised hopes among consumer nations that the worst might be over for an oil price scare threatening to blunt global economic growth.
The Organization of the Petroleum Exporting Countries holds informal talks in Amsterdam on Saturday to discuss a Saudi proposal to raise production quotas by at least six percent, 1.5 million barrels daily.
But analysts say the cartel may have lost control of a price spike inflamed by the inability of refiners in the United States to cope with peak summer U.S. gasoline demand.
"There is a short-run situation that is very much associated with the problems of the U.S. gasoline market; problems that OPEC can do very little about," said Paul Horsnell of Barclays Capital. "The U.S. gasoline inventory situation remains highly precarious."
The U.S. government's Energy Information Administration on Wednesday reported national gasoline stocks rose slightly in the week to May 14. But inventories remain four percent lower than a year ago and demand is up three percent year-on-year.
Dealers expect OPEC ministers to use their Amsterdam meeting, on the sidelines of a conference between oil producing and consuming nations, to try to talk down prices.
U.S. Energy Secretary Spencer Abraham is expected to press OPEC in Amsterdam to open the pumps.
But a firm decision on output is not expected until a full OPEC meeting in Beirut on June 3, by which time $40 oil could be more firmly established.
OPEC is struggling to convince traders that lifting supply quotas by 1.5 million bpd will make much difference to prices. It already is pumping more than two million barrels daily in excess of its official 23.5 million bpd output limit.
Spare capacity in the cartel is estimated at about 2.5 million bpd, limited mostly to Saudi Arabia and most think Riyadh needs to add significant real extra volumes to change market psychology.
While U.S. gasoline is driving prices now, analysts say OPEC has helped create the conditions for $40 crude by restraining supplies too much during the second quarter, when low seasonal demand normally allows world inventories to rebuild.
World crude consumption is forecast picking up sharply for the rest of the year, peaking in the fourth quarter when incremental winter demand is normally met by drawing down inventories.
"If markets are this nervous about supply when global demand is at a low, the prospects look fairly grim for when oil demand moves toward its seasonal high," said Horsnell at Barclays Capital.
"A large proportion of the upwards swing of demand into Q4 will have to be met in the usual way, by an inventory run down. To get inventories to run down, you need to run them up first and the absence so far of significant and sustained builds is a disconcerting feature of the current flow of global data."
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