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Saudi urges 2% rise in oil output
Saudi Arabia's advocacy of a 2 percent increase to OPEC's output target failed to calm oil markets Monday, though it appeared to reflect growing concern within the cartel about the effect high prices could have on the global economy.
Even if the Organization of Petroleum Exporting Countries raised its daily production ceiling by 500,000 barrels, the impact on actual supplies would be muted because member nations — eager to maximize profits with crude futures trading near $55 a barrel — are already overshooting the existing quota by about 700,000 barrels.
"Most members don't have additional (production) capacity, but the Saudis do," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York. "It appears they're trying to cool prices down a bit."
The price for light, sweet crude for April delivery fell early in the day, but then reversed course, rising 52 cents to $54.95 per barrel on the New York Mercantile Exchange. Brent crude rose 56 cents to settle at $53.66 per barrel on London's International Petroleum Exchange.
The high cost of oil has led to surging prices for heating oil, diesel, jet fuel and unleaded gasoline, which in the United States averages $2 a gallon, or 26 cents higher than a year ago.
Before Monday, OPEC energy ministers had indicated the group, which meets Wednesday, would keep the quotas of its member states steady in spite of the discrepancy with actual production levels. Oil Minister Ali Naimi of Saudi Arabia — the organization's main producer — changed the terms of the debate by calling for an increase to the quota, which is now 27 million barrels a day.
The surging price of oil reflects concerns that the world's petroleum supply is being stretched thin by stronger than expected economic growth. It is also being influenced by instability in Iraq and other oil producing nations and by the weak dollar. Because crude is priced in the U.S. currency, OPEC countries want to maintain buying power in Europe and other countries and are therefore cautious about oversupplying the market and allowing prices to fall sharply.
But Naimi said current oil prices were "unjustified" and that "there is a need for raising the OPEC ceiling by half a million barrels a day at the upcoming ministerial meeting," according to the official Saudi Press Agency.
OPEC's president, Kuwaiti oil minister Sheik Ahmed Fahd Al Ahmed Al Sabah, hinted that a consensus was building around that idea.
"If the prices continue at the present rate, then we will increase our production," Sheik Ahmed said on arrival at the airport in Isfahan. "If necessary, we will increase by 500,000."
Not all OPEC members support raising the ceiling, suggesting there could be arguments when ministers get down to making a decision in this central Iranian city on Wednesday.
When Libya's Oil Minister Fathi bin Shatwan arrived, he told reporters: "I don't think I will be (agreeing) with" an increase in the output ceiling.
Even if the ceiling is raised, oil traders say the relief is likely to be temporary.
"I think the thing is not so much supply, but demand," said Lee Fader, a trader for ABN Ambro in New York. "If demand stays strong, it could use up that oil very quickly."
Prices have shot up by nearly 20 percent in the past five weeks. The rise has put pressure on the 11-nation OPEC to take steps to cool the market. OPEC's other option on Wednesday is to leave its output ceiling unchanged, Sheik Ahmed said. Alluding to the current overproduction, Iranian Oil Minister Bijan Namdar Zangeneh said neither a higher ceiling nor an unchanged one would put any more oil on the market. The Saudi proposal of a higher ceiling is probably intended to legitimize some of the overproduction, Zangeneh said. OPEC would be unwise to raise output aggressively in what is traditionally the weakest season for oil, he said. "Both proposals mean we should keep the existing level of production within OPEC," the Iranian oil minister said. Iraq is exempt from OPEC's quota system to aid its reconstruction. |
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![Saudi Oil Minister Ali al-Nuaimi. Top oil producer and OPEC heavyweight Saudi Arabia said it would push for a hike in the cartel's production ceiling when it meets in Iran this week, amid record high crude prices and rising demand. [AFP/File]](xin_47030215091239042057.jpg)
