Opec warns more oil may fail to quell price scare
June 1, 2004
By Reuters
By Fiona O'Brien and Andrew Mitchell
Beirut - Opec producers said on Tuesday that they feared an expected deal this week to hoist crude output limits may fail to quell an escalating scare over rising world oil prices.
Ministers from Opec, meeting in Beirut on Thursday, said they could not guarantee to ease prices driven to a new 21-year high by Saturday's militant attack in Khobar, eastern Saudi Arabia.
"A supply increase will not help lower prices," said Iranian Oil Minister Bijan Zanganeh.
The Organisation of the Petroleum Exporting Countries is considering lifting supply quotas by 2-2.5 million barrels daily, 8-11 percent.
But heightened concern over political instability in the cartel's leading producer Saudi Arabia is spoiling Opec efforts at toppling prices that threaten to slow world economic growth and hit fuel demand.
US oil prices catapulted on Tuesday to a new record of $42 a barrel, up $2.12, after the attack claimed by al-Qaeda that left 22 dead.
Saudi Oil Minister Ali al-Naimi, arriving in Beirut, said Saudi oil facilities were safe and vowed OPEC would "do its best to make the fundamentals right".
But his cartel counterparts warned that making sure supply meets demand may not be enough to calm fears now beginning to border on panic in world oil markets.
Qatari Oil Minister Abdullah al-Attiyah said the "fear factor" surrounding a possible disruption of supplies from the Middle East was inflating crude by $9 a barrel.
"The Saudis are saying that all they can do is make sure there's enough supply. It goes to show how impotent Opec is at the moment because there's really nothing much wrong with fundamentals," said Nauman Barakat of brokers Refco in New York.
Saturday's attacks have underlined concerns about Riyadh's ability to contain a wave of violence by Islamic militants.
"Even if they are not capable of doing serious damage to oil infrastructure, political instability and the threat to the ruling family is of real concern and promises to haunt the oil market for some time to come," said veteran Opec analyst Geoff Pyne.
"Opec only has limited scope to do anything about the price. There is no real shortage of supply so the best they can hope for is to have some psychological impact."
Cartel production already is running at least 2.3 million barrels daily above formal quota limits of 23.5 million bpd so an increase in production allocations will only legitimise existing output.
Saudi Arabia, the only producer with significant spare capacity, has already vowed to pump nine million barrels daily, well in excess of any official new quota it is likely to be granted.
That may cause friction in Opec ranks when traders are looking for a show of unity from the cartel that controls half the world's oil exports.
There is some talk in Opec that its best option for bringing down prices could be to suspend quota restrictions, officially granting Saudi the freedom to pump at will.
But such a move is meeting heavy resistance.
"It's possible but I think there will be a lot of opposition to giving Saudi carte blanche to do what it likes independent of the rest," said one Opec delegate.
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