OPEC


OPEC considers oil output rise

OPEC was meeting on Tuesday to consider a Saudi proposal to raise oil output in a gesture to consumer nations worried by the economic impact of $77 oil and rapidly diminishing stocks.

But the plan to add 500,000 to one million barrels per day (bpd) had yet to convince all OPEC ministers and discussions were continuing, Iraqi Oil Minister Hussain al-Shahristani oil minister said.

"Most are looking favorably," he said.

OPEC sources told Reuters Saudi Arabia and fellow Gulf Arab oil producers the United Arab Emirates, Qatar and Kuwait backed a production hike. "But if they meet stiff resistance, they may just drop the idea," one source added.

OPEC, pumping some 30 million barrels per day into the 86 million bpd global market, is trying to make sense of conflicting economic data leading into peak winter demand.

Industrialized consumer nations are forecasting their crude oil stocks will fall to the bottom of the five-year average range by January unless OPEC pumps more crude oil, and fast.

U.S. crude oil is above $77, close to its August 1 record high of $78.77 a barrel, following attacks on oil and natural gas pipelines in Mexico, the world's fifth largest crude exporter.

But uncertainty over the U.S. economy -- last month employers cut jobs for the first time in four years -- has cast doubt over oil demand growth in the world's top consumer.

UNWINDING CUTS

The views of the Gulf Arab states, particularly the world's biggest exporter Saudi Arabia, are key to OPEC policy decisions. They straddle more than half of OPEC's proven oil reserves and have almost all the organization's spare production capacity.

"There is a feeling of changing fundamentals. Some of the ministers are concerned about a tightening of the market," a second OPEC source said.

An increase of 500,000 bpd or more on top of current OPEC supplies would placate consumer nations without flooding the market and causing a price collapse.

It would also unwind most of the 1.7 million bpd of OPEC cuts agreed since Oct 2006 because the 10 states subject to output restraint are already pumping nearly 1.0 million bpd above their 25.8 million bpd limit.

Iraq and new member Angola are exempt.

The position adopted by the Gulf Arab states marked a shift for most. The ministers of Kuwait, Qatar and the United Arab Emirates had all said on arrival in Vienna that crude supplies were ample. Some were concerned credit turmoil stemming from U.S. subprime loans might hit the real economy.

"The ministers are worried about financial markets and also the backwardation in U.S. crude oil futures so it is a very sensitive situation. They want to discuss the market situation carefully," said OPEC Secretary-General Abdullah al-Badri.

U.S. crude oil for October delivery costs more than later months, a "backwardated" price structure that may point to a tight market and encourage refiners to draw oil from their stocks.

Demand forecasts for the final quarter of the year show an increase of up to 2.0 million bpd. At the top end, the International Energy Agency sees consumption rising to 88.1 million bpd. OPEC puts the figure at 87.08 million bpd.

U.S. Secretary of Energy Sam Bodman told reporters in Florida on Monday he had encouraged OPEC to increase supplies.

They heard. They were courteous," he said.

Simon Wardell, energy analyst at Global Insight, said even with extra OPEC oil global crude stocks could fall by 100 million to 150 million barrels by the end of the year.

"That will push global inventories down to their lowest levels since 2004, with a risk that they could fall further if there is a cold winter," he said.

(Published by Reuters, September 11, 2007)

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