OPEC likely to increase oil production

OPEC’s president said today that the group needs to increase its output ceiling now despite oversupply in the crude oil market, and may need to act again as US refineries come back on line and the Northern Hemisphere’s winter looms.

“We think we need to send a message to everybody there will be extra oil in the market – we’ve accepted the idea – to stabilise the price,” said Sheikh Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait’s oil minister.

OPEC is poised to increase its output ceiling, currently 28 million barrels a day, by 500,000 barrels a day, or 2 percent, at its meeting in Vienna, Austria on Tuesday.

Al Sabah said that while the market was currently oversupplied by 1.5 million barrels a day, and there are signs demand for crude is slowing, a further increase of the output ceiling may be needed as the typically high-demand winter season approaches and refining capacity knocked out by Hurricane Katrina is restored.

“I think in November some refineries will come back in the south of the US, and if the winter is cold, we have to do our best to increase real production,” Al Sabah said.

He said OPEC had 1 million barrels a day in extra production, but would not say how much the possible quota increase later this year would be.

Previous OPEC moves have done little to ease market fears over supply, and any increase is widely regarded as meaningless because it merely sanctions existing production.

Saudi Arabia’s Oil Minister Ali Naimi has said he supports a ceiling hike, but that he also did not see demand for more crude. He did not specify the size of the increase.

Qatar’s Oil Minister Abdullah bin Hamad al-Attiyah warned earlier that OPEC shouldn’t raise production just for “increase’s sake,” saying there were indications that oil prices were decreasing because of lower demand.

“We’ll listen to the Saudi proposal but we shouldn’t increase just for increase’s sake,” al-Attiyah said.

Al-Attiyah said the problems with US refineries being offline since Katrina hit were temporary, but the capacity “will take a few months to get back to full production.”

“If there’s no demand, how will that affect prices?” he said.

With oil prices about 50% higher than a year ago and motorists feeling the increase at the petrol pump, the ministers have repeatedly said that OPEC is concerned and are doing all it can to keep the market well-supplied and prices stable.

But concern that high prices have weakened oil demand has dampened prices, which had soared above US 70 a barrel on concern about production outages caused by Hurricane Katrina, instability in Iraq and the upcoming winter season.

Prices hit their lowest levels in five weeks Friday, with light, sweet crude for October closing at US$63 on the New York Mercantile Exchange, the lowest settlement price since August 5. Gasoline closed at US$1.7851 a gallon, the lowest close since August 3.