Opec production hike fails to push down oil prices

economictimes.indiatimes.com REUTERS[ MONDAY, JANUARY 13, 2003 08:31:31 AM ]

SINGAPORE: Oil prices held steady on Monday, shrugging off Opec's weekend pact to raise supplies as being too little, too late to lift wafer-thin US fuel stocks anytime soon.

The Organization of the Petroleum Exporting Countries agreed at an emergency meeting in Vienna on Sunday to increase official production limits by 1.5 million barrels per day (bpd) to compensate for six weeks of losses in strike-bound Venezuelan supplies.

US light crude tumbled almost 50 cents in early trade to an intraday low at $31.20 a barrel, but quickly recovered to stand six cents down at $31.62 at 9:45 PM EST Sunday.

Analysts said prices were little changed as traders saw no short-term relief for US crude inventories, which are hovering just above 26-year lows as the stoppage in Venezuelan exports eats into supplies to the world's biggest oil consumer.

Oil from Middle East suppliers takes four to six weeks to reach US shores, while Venezuelan supplies, which account for 13 per cent of US imports, arrive in about five days.

"There are delays in getting oil from the Middle East to the United States, plus Opec's agreement is for 1.5 million barrels per day, but prior to the strike Venezuela production was about 2.5 million," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney

"The global market is going to remain tight and with ongoing war fears, you've got to be pretty brave to sell oil at the moment," said Thurtell.

Alarm Bells

The Middle East-dominated cartel fears an oil price shock if a US-led war in Iraq should come before Venezuelan supplies are restored.

Venezuela, Opec's third-biggest producer, is fifth in world exporter rankings, while Iraq sells up to two million bpd overseas, which could be disrupted if war breaks out.

The strike and the looming threat of war pushed US crude to a two-year high at $33.65 at the end of December, setting off alarm bells that a run of high energy bills would damage the fragile global economy.

Opec President Abdullah al-Attiyah said on Sunday Opec would meet again if Venezuela restores full production. Opec has scheduled an ordinary ministerial meeting for March 11.

Opec's agreement brings the cartel's official production ceiling for its 10 members bound by quotas to 24.5 million bpd. Iraq sells oil under the United Nations' oil-for-food programme and is excluded from Opec's quota system.

Analysts saw little chance of prices heading below $30 despite the additional Opec crude. Actual new oil to hit the world's 76 million bpd market would be limited, they said.

Opec's latest increase was divided pro-rata among members, meaning Venezuela was also granted its share of the higher output limit despite the strike, which entered its 43rd day on Monday and has slashed oil exports to roughly one-fifth, or 500,000 bpd.

Many others in Opec have little, or no, spare capacity to bump up production.

"I certainly see oil staying above $30 until the Venezuelan situation is sorted out," said Paul Ashby, oil and gas analyst at ABN Amro in Sydney.