| Opec actually raising output { March 27 2004 } Original Source Link: (May no longer be active) http://www.baltimoresun.com/business/bal-bz.opec27mar27,0,170150.story?coll=bal-business-headlineshttp://www.baltimoresun.com/business/bal-bz.opec27mar27,0,170150.story?coll=bal-business-headlines
OPEC actually raising its output Plan to tighten spigots apparently unraveling; High oil prices most tempting Associated Press March 27, 2004
LONDON - OPEC's plan to cut its oil production target by 4 percent appears to be unraveling, as group members ignore their self-imposed quotas to take advantage of high crude prices and meet the surging demand for oil in China and the United States. Despite announcing two production cuts in six months, the Organization of the Petroleum Exporting Countries has boosted its actual output to try to keep pace with the rising market.
OPEC agreed last month to reduce its output ceiling by 1 million barrels a day starting April 1, in an effort to keep prices from tumbling during a seasonal lull in demand this spring.
But as OPEC representatives prepare to meet Wednesday in Vienna, Austria, to review the oil market, some are no longer treating next month's cut as inevitable and are suggesting instead that all options - even an increase in output - are now open.
That could portend cheaper and more plentiful crude, but it probably wouldn't be enough to comfort American motorists. U.S. gasoline prices have risen to a record national average of $1.75 a gallon, due mostly to a robust domestic demand, limited refining capacity and concerns about possible shortages in blending components for reformulated gasoline. Some analysts say any foreseeable increase in oil supplies probably wouldn't translate into bigger gasoline inventories in time for the peak summer driving season.
Crude prices have risen by about $6 a barrel since OPEC announced its latest cut Feb. 10. U.S. prices have bumped uncomfortably close to the psychologically important threshold of $40, though they've backed off somewhat in recent days on evidence of a buildup in crude inventories. Futures contracts of U.S. light, sweet crude for May delivery were trading at $35.68 yesterday afternoon in New York.
"You'd have to be a complete idiot to cut production when prices are at these levels," said Adam Sieminski of Deutsche Bank in London.
Excluding Iraq, which doesn't participate in the group's quota agreements, OPEC has pumped an estimated 26 million barrels a day so far in March. The logistics of reducing crude shipments now would make it impossible for the group to comply with its new ceiling of 23.5 million barrels even if it wanted to, said Leo Drollas of the Center for Global Energy Studies in London.
Costlier crude is now a political issue in major importing countries. White House Chief of Staff Andrew Card urged OPEC this week to increase its production and said the Bush administration would be talking to its "allies" in the group to ensure that they kept supplies flowing, he told MSNBC television.
OPEC's 11 members supply about one-third of the world's oil.
The group's president, Purnomo Yusgiantoro, told reporters this week that OPEC would discuss three possible strategies at the Vienna meeting: trimming the output target as planned, leaving it unchanged at its current level of 24.5 million barrels a day, or raising it.
Purnomo's newfound flexibility attests to the mixed signals coming from the oil market. Although crude prices are high, some analysts insist there is no real shortage. They point instead to futures markets, where an unusually large number of "long" positions have helped drive the market upward.
At the same time, many analysts - including those at OPEC - foresee an excess in physical supplies of crude this spring. Purnomo predicted that global demand for oil would fall by 2.5 million barrels a day in the second quarter. Wary of a consequent plunge in prices, OPEC announced pre-emptive cuts in its output ceiling in September and again six months later in February.
However, the unexpected strength in demand from China and the United States has eroded OPEC's resolve to follow through on either cut.
"I'm very confused now - the market is also very confused," Qatar's Oil Minister Abdullah bin Hamed al-Attiyah said this week.
Copyright © 2004, The Baltimore Sun
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