Opec output hike seen , Oil could rise to $80 per barrel:

Bahrain Tribune ^ | 30/08/2005

[M. Espinola]

Opec President Shaikh Ahmad Al Fahd Al Sabah said yesterday he will propose the cartel raise its output by 500,000 barrels per day when the group meets in September in an attempt to help cool oil prices at record highs.

Shaikh Ahmad, also Kuwaiti oil minister, said he will also propose a 500,000 bpd increase in the group's official output ceiling at the September 19th meeting.

"We hope that the resolution to the board to increase production and the ceiling, 500,000 (bpd) and 500,000 (bpd), and to refresh the dialogue with all the main consumers, I hope this will at least help the market and the prices to be more stable," Shaikh Ahmad said.

"The market is well supplied," Shaikh Ahmad said and added: "There is about or over one million bpd (oversupply) in the market. If we talk about demand and supply and other economic factors I don't think prices will reach $100 or even deserve to be near $70."

"But if we talk about other issues or realities which play a role in the price increases like geopolitics, refinery problems or psychological problems... then prices may cross $100."

The 10 Opec members subject to cartel quotas, excluding Iraq, are already pumping close to capacity.

"Opec 11 is producing over 30.4 million (bpd) and you can have two million for Iraq, then Opec 10 is at 28.4 million," Shaikh Ahmad said. Opec's official output ceiling is 28 million bpd.

Opec had some one million bpd of spare output capacity, mostly in the hand of its leading producer Saudi Arabia, which could supply the bulk of the proposed hike, the minister said.

"We are allowing the stocks to be build, and we are even allowing them to be build over 56 days (of forward cover) and even with that the prices are increasing," he said. "For that I think it is not Opec's responsibility although we have to work in close cooperation with consumers to solve the problem."

In PARIS: Oil prices shot past the 70-dollar-a-barrel level yesterday as a powerful hurricane bore down on crude-producing regions of the US, prompting concerns for the world economy, which until now has weathered the surge in oil rates.

Some analysts are now predicting that prices could aim for the once unthinkable $80 a barrel — a level economists fear could severely dent consumer demand and curb business activities.

New York's main contract, light sweet crude for delivery in October, touched a high of $70.80 in Asia yesterday morning on news that Hurricane Katrina was swirling close to the heart of US production and refining operations around New Orleans.

After the hurricane was downgraded a notch lower from a maximum category five storm, the benchmark futures contract was trading at $69.08 a barrel, up $2.95 from its close of $66.13 in the US market on Friday. The price was more than double levels at the end of 2003.

The effect on prices of the hurricane has been intensified by an unexpected fall in stocks of petrol in the US as well as anxiety in the wake of geopolitical friction between Iran and the west.

Market experts warn that the 80-dollar level could be approached because efforts to strike a balance between supply and demand have been complicated by sharply inadquate refining capacity, notably in the US.

The Organisation of Petroleum Exporting Countries, which accounts for about 40 per cent of global oil output, has launched an offensive to convince market players that there is in fact no supply squeeze. "We don't have a shortage today, what we have is concern, and also we have problems ... refining," said Adnan Shihab-Eldin, the acting Opec Secretary General and research director. "That has been the main problem in the last couple of years. Remember there has not been much expansion in the refining system for the past 20 years," he told the BBC.

"We expect again additional capacity from Opec and outside Opec to exceed demand growth. Therefore I expect prices sooner or later will begin to come down to levels that reflect fundamentals, not the levels that we are seeing today. I would be surprised to see prices to continue to go up."

graphics added

[jwpjr]

re: The author doesn't explain why refinery problems result in higher crude costs

I have long since learned that economics is a 'science' that is far more akin to black magic than launching a mission to Mars, but this statement seems to be exactly 180 degrees out of phase with common sense. A hitch in the git-along of the refinery process should result in a decrease in demand for the raw product, and a decrease in demand usually signals a fall in price for the product.

I have long since felt the whole crude oil -> finished petroleum products food chain could be seriously disrupted if the masses would simply curtail their purchase of the finished product for a week or so.

There is precious little reserve capacity in the storage facilities around the country. Stopping the flow of gas out of the service station's (now there's an oxymoron) very limited storage systems and they would not be able to accept any more fuel from their supplier. When the supplier could not make room in their storage facility for more incoming product then the refinery would soon be unable to ship product from its storage tanks and would be forced to stop producing additional product until it had someplace to put it. If they can't refine, then they don't need additional crude oil and the ships that bring it would have no place to unload their cargo. When no more crude could be put on board tankers the limited storage facilities in the producing countries would soon be full and they would have no place to pump the oil when as it came out of the ground. Without that daily cash flow everyone along the chain would soon begin to look for ways to dispose of the excess inventory. Supply and demand would take over and the price of gas would fall quickly as the everyone along the line sought to increase their cash flow. These producing countries are VERY dependent on the cash flow from their exports.

I know it seems a bit far-fetched, but what if I had told you in 1990 that less than 20 people armed with nothing more than box-cutters would set in motion a chain of events that led to the destruction of not one but two of America's greatest buildings, an attack on the Pentagon and eventually a war that would take on terrorists around the world.

[Uncle Vlad]

Remember the stupid gas lines in the 70's?

[Dane]

I know it seems a bit far-fetched, but what if I had told you in 1990 that less than 20 people armed with nothing more than box-cutters would set in motion a chain of events that led to the destruction of not one but two of America's greatest buildings, an attack on the Pentagon and eventually a war that would take on terrorists around the world

Actually your above is a bit misleading. Yes they had only box cutters, but they also had the knowledge to fly those planes and a crazy islamofascist zeal to drive them to committ such heinous acts.

[Trust but Verify]

And people need to curb their consumption as much as possible. It isn't that hard.

[thackney]

It is my understanding that we do not have the refineries to process the heavy crude, only the sweet.

Your understanding is incorrect.

That is why our Alaska oil goes to Japan for refining.

That is a flat out lie.

[Iscool]

If you think buying a convenience store/gas stations is a way to get rich quick with no work, why don't you buy one?

I believe you missed the point...The A-rabs own the supply end...They've got a good start on the retail end...They control the cost of the oil as it goes in to the refinery...They control the retail cost to the consumer...

And BTW, the foreigners that work these places in my area don't own them...They all claim the owner (in my locale) is based in Houston, Texas...

[nyconse]

I sure do...I remember rationing. You had to buy gas certain days if your license plate was odd and even. Some days you were allowed to buy gas, you couldn't find a gas station that had any gas. My parent bought a kerosene heater and put it in the basement because we had an oil furnace and the price was sky high. President Carter lectured us on how we should tighten our belts and wear sweaters. Those were bad days. We had meat shortages too. Remember, the butchers that got caught selling horse meat? I heard Pres. Bush said this would not impact the economy; I hope he is right. I work for a company that ships stuff, and I am really worried.

[nyconse]

Pres. Bush should by executive order immediately make it so we don't need 40 types of gas. This would help. Also, I think in the short term, we are going to need some rationing and price controls (I know, flame away) because certain areas like Georgia (I live in Georgia) may not even have gas next week. You must make sure there is enough gas for commercial enterprises (trucking etc), or we will have food shortages and all be out of work at some point.

[Iscool]

I don't believe we know yet how many of the refineries are operational...And not just the refineries...The pipelines that carry the gas will need to be inspected...

Yes, there are some things Bush could do...

[nyconse]

Pres. Bush will speak at 5:00 PM. This is a national crisis. I am very relieved the President realizes this.

[stand watie]

YEP.

free dixie,sw

[stand watie]

the whack-jobs on the left will ALWAYS put up obstacles, because they HATE America & all FREEDOM stands for.

free dixie,sw