Opec meeting expected to raise oil-output ceiling

Under pressure to lower stubbornly high oil prices, Opec ministers were gathering in Austria today to try to lower crude costs and ease the brakes on the global economy.

Key members were expected to raise the cartel’s production quota to get prices, which have hovered about $55 per barrel, back below $50.

But analysts expressed scepticism that symbolically lifting the ceiling to 28 million barrels a day would give any real relief to consumers or ease market fears of a tightening supply.

“It’s unlikely this will have a major effect in the short-term, as we believe Opec has limited capacity to increase production,” said Daniel Hynes, an energy analyst with Australia’s ANZ Bank.

Sheik Ahmed Fahd Al Ahmed Al Sabah, president of the Organisation of Petroleum Exporting Countries, said yesterday the group had little choice but to act with prices already high and expected to climb.

“Whenever it’s over $50, we have to react,” he said. “The market is well-supplied, but we have to do everything we can to make more reasonable prices.”

Opec members expressed support for boosting the output ceiling by 500,000 barrels a day, and Al Sabah suggested they might be willing to raise it by another 500,000 barrels later this year. Opec’s current output ceiling is 27.5 million barrels per day.

But it’s already producing more than 28 million barrels, so raising the quota would simply bring it in line with current production levels, and not necessarily add real oil to the market.

The group needs to increase supply at the end of July or early August to meet demand in the fourth quarter, Al Sabah said. “We see demand jumping from 29 million barrels a day to 30.5 million barrels a day for the fourth quarter,” he added.

Iran’s oil minister, Bijan Namdar Zangeneh, echoed analysts’ qualms, conceding that raising the ceiling will have little impact on crude prices.

“I’m not for it, I’m not against it, because I think it’s on the market and if you want to be realistic, it means no change in the real situation,” he said.

Mohamed bin Dhaen Al Hamli, the United Arab Emirates’ energy minister, said he would support anything to “make the market comfortable”, while Edmund Daukoru, Nigeria’s presidential adviser on petroleum and energy, also stressed the need for action to try to cool high prices and insisted that raising the output ceiling would help.

“I have no doubt we need to do something immediately,” Daukoru said. Raising the ceiling by 500,000 barrels a day would go “beyond symbolisation”, he said.

With markets sufficiently supplied, the lack of spare refining capacity was a key factor driving soaring prices, leading members said.

“We have to trace the root of the problem, and that is whether refineries can accommodate” further increases in oil production by processing lower-quality crude, Al Sabah said. “The main problem now is the refineries.”

Qatar’s oil minister, Abdullah bin Hamad Al Attiyah, agreed, saying the world’s oil market was well-supplied but that it couldn’t produce more crude currently if needed.

Saudi Oil Minister Ali Naimi said he also wants the 11-nation cartel to get prices below $50. “That is what is reasonable worldwide,” he said.

“Opec is doing its share for the market,” Naimi said. “The supply is there. Don’t panic.”

Including Iraq, which is not bound by the quota, Opec is churning out close to 30 million barrels a day, or about 35% of current global demand.

Opec contends that it sees the most benefit from prices in the $40 to $50 range. The group has no interest in seeing prices plummet, but also wants to keep buyers from turning to producers outside the 11-nation cartel.

“If prices go under $40 a barrel, Opec should cut production by 500,000 barrels” to compensate, said Libya’s energy secretary, Fathi Hamed Ben Shatwan.

He added: “Practically, we do not have the physical capacity to add to the market ... the market has a psychological, not a physical, problem.”