On Wednesday, OPEC will "consider a plan for a two-step increase in its official production ceiling in an effort to bring oil prices below $50 a barrel," the Financial Times of London reported Tuesday.[1] -- The Times said the cartel has "reached consensus for the first step an increase in the production ceiling of 500,000 barrels a day to take total output to 28m b/d, which puts it in line with current output levels." -- But the Times warned that the move "could backfire. Prices could still rise as oil markets will focus on the lack of spare production capacity, which is a buffer against severe supply disruptions." -- One problem was pointed out by Saudi Arabia's oil minister who "said the kingdom's spare capacity was largely made up of low quality oils, known as heavy and sour crudes, which were costly to process into petroleum products such as petrol and diesel," adding that "there was not a shortage of supply, as crude oil inventories in industrialized countries were at comfortable levels of about 53 days of demand, but there was a shortage of refining capacity to process low quality crude oil." -- "'So build, build, build more refineries,' Mr Naimi said." -- Despite such problems, the oil markets reacted favorably to the news, the price of a barrel of oil being "$1.05 down at $53.73, having risen $2.11 on Monday," the Financial Times reported in a separate article.[2] ...
1.
International Economy
Oil
OPEC LOOKS AT TWO-STEP OUTPUT RISE
By Javier Blas and Kevin Morrison
Financial Times (UK)
June 14, 2005
http://news.ft.com/cms/s/ee927b9e-dd06-11d9-b590-00000e2511c8.html
VIENNA -- The Organization of Petroleum Exporting Countries will on Wednesday consider a plan for a two-step increase in its official production ceiling in an effort to bring oil prices below $50 a barrel.
The oil cartel fears economic damage from high oil prices, and OPEC ministers on Tuesday reached consensus for the first step an increase in the production ceiling of 500,000 barrels a day to take total output to 28m b/d, which puts it in line with current output levels. The ministers were also discussing an additional increase of 500,000 b/d that could add real supply to customers.
If the two-step plan is ratified, it will take OPEC production quotas to their highest level since the quota system began in 1987. The second step will be left to the discretion of the OPEC president if prices remain stubbornly high.
However, some hawkish members of the cartel, such as Libya and Venezuela, were voicing opposition to this second step. Any lift in the production quota is also unlikely to calm market fears about tight supplies this winter, and could backfire. Prices could still rise as oil markets will focus on the lack of spare production capacity, which is a buffer against severe supply disruptions.
Sheikh Ahmad Fahad al-Sabah, Kuwait's energy minister and OPEC president, said OPEC had to prepare itself for producing more oil by the end of the year, when global oil demand is forecast to rise 4m b/d from current consumption of about 82.5m b/d.
"I think it will start from next month. There will be new crude in the market," he said in Vienna on Tuesday. He said OPEC's 11 members, including Iraq which is not subject to quotas, were expected to produce between 30.5m to 31m b/d by the end of the year. With most OPEC members producing at capacity, any additional supply will mainly come from Saudi Arabia, which claims to have total production capacity of 11m b/d and is only producing 9.5m b/d. The difference represents the bulk of the world's remaining unused production capacity.
Ali Naimi, Saudi Arabia's oil minister, said the kingdom's spare capacity was largely made up of low quality oils, known as heavy and sour crudes, which were costly to process into petroleum products such as petrol and diesel.
Mr. Naimi said there was not a shortage of supply, as crude oil inventories in industrialized countries were at comfortable levels of about 53 days of demand, but there was a shortage of refining capacity to process low quality crude oil.
"If we don't have refineries, prices would rise until someone realizes that we need more refineries. So build, build, build more refineries," Mr Naimi said.
Anxiety about oil demand this winter has pushed crude futures up to $55 a barrel in New York. West Texas Intermediate (WTI) futures in the US were 17 cents lower at $55.45 a barrel in early afternoon New York trade. The OPEC basket of crude exports was $50.83.
Several OPEC ministers said they would prefer oil prices of between $40 to $50 a barrel. Edmund Daukoru, Nigeria's oil minister, said the cartel might have to meet again before the next scheduled meeting in September.
2.
Commodities
OIL EASES ON POSSIBLE OPEC OUTPUT BOOST
By Darryl Thomson
Financial Times (UK)
June 14, 2005
http://news.ft.com/cms/s/25f82458-dcbc-11d9-b590-00000e2511c8.html
Crude oil eased on Tuesday as details emerged of a higher-than-expected possible boost to supplies from the Organization of the Petroleum Exporting Countries.
Sheikh Ahmad Fahd al-Sabah, OPEC president and Kuwaiti oil minister, said several OPEC ministers proposed a 500,000 barrels per day immediate quota rise. If approved at the cartels meeting in Vienna starting on Wednesday, output would rise to 28m b/d. However, Opec is already exceeding that level of production.
What drove prices lower was a Nigerian proposal that a further hike of a similar level should be left to the discretion of the OPEC president. Such an increase, if implemented, would be real oil the president said.
Crude oil was also under pressure from profit-taking earlier in the day after climbing 4 per cent in the previous session on distillate supply fears.
In New York, Nymex West Texas Intermediate for July delivery settled $1.05 down at $53.73, having risen $2.11 on Monday.
Brent Crude for July delivery fell 62 cents to $55.00. The July contract expires at close of trading on the International Petroleum Exchange on Wednesday. The August contract was down 57 cents at $55.20.
Macro risks look skewed to the upside, demand signals remain robust, supply remains uninspiring, and now inventories look set to move into a period of seasonal draws, oil analysts at Citigroup Smith Barney said.
Crude stocks in the U.S. are at six-year highs, a level which is expected to change little when the weekly inventory figures are released this afternoon by the U.S. Energy Department. Distillates are seen rising 1.2m barrels and gasoline stocks climbing by 600,000 barrels.
If we get yet another distillate build this week, we would, in effect, have two back-to-back increases in inventories, despite stronger demand, Edward Meir, of Man Financial, said. This could perhaps spark a rather good sized retrenchment in a market that, in our view, is moving higher mainly on perceived distillate problems and little else.
Gold eased $1.85 to $426.90/7.60 as investors took profits after U.S. data eased inflation worries.
Gold has outperformed most major currencies, suggesting the recent strength is not just a rejection of the dollar and the euro, but is perhaps the beginnings of a more sustained independence from currency markets, Alan Williamson of HSBC said.
Copper failed to rise above the $3,280 resistance level, easing $23 to $3,254 a tonne.
Zinc fell to $1,262 a ton, down $16 as stocks on the London Metal Exchanges books have risen 20 per cent in the last three days to a four-and-a-half month high.