Members of the Organization of Petroleum Exporting Countries decided Jan. 12 to increase their total oil production quota by 6.5% to 24.5 million b/d in an effort to reassure markets unsettled by a shortfall in oil exports from Vene- zuela and a possible war in Iraq.
"Having reviewed the oil market situation, especially the demand-supply picture for the first quarter of 2003, and in light of the impact of the supply shortfall on price volatility, the conference decided to raise the OPEC-10 ceiling from 23 million b/d to 24.5 million b/d," effective Feb. 1, OPEC officials said in a statement at the end of their Vienna meeting.
The increase is at the upper end of what analysts had expected, with sources close to OPEC telling OGJ that two proposals had been put forward, one calling for a 1 million b/d increase and the other for a hike of 1.5 million b/d.
OPEC was pressured to act because market prices had risen above its target range of $22-28/bbl in recent weeks, mainly owing to the loss of Venezuelan exports of about 2 million b/d in a 6-week-old strike by oil workers who oppose the government of President Hugo Chávez. "In this regard, the conference extends its support to Venezuela in its efforts to restore its market share," the closing statement said.
OPEC Conference Pres. Abdullah bin Hamad Al-Attiyah, who is also Qatar's energy minister, said the organization is hopeful that Venezuela will return to full production soon and that other OPEC members will reverse the output hike when that happened.
Alí Rodríguez Araque, former OPEC secretary general and current president of Petroleos de Venezuela SA (PDVSA), said his nation is increasing production and hopes to return to normal production levels by the end of February. But the political situation in Venezuela remains too uncertain to make reliable forecasts, with strikers at PDVSA vowing last week to continue efforts to oust Chávez.
While OPEC members made no mention of the possibility of war with Iraq, their rapid agreement on the higher production figure was unambiguously intended to calm rattled world markets, a point stressed by Al-Attiyah after the conference. "OPEC is trying to send a very strong message that it will do its utmost to stabilize demand and supply," he said.
US officials welcomed OPEC's decision, saying the hike would support economic growth and stability. Venezuela normally is OPEC's third-largest producer and a key supplier of oil to the US.
"It's a global oil market and the more oil on the market, the better for all," US Department of Energy spokeswoman Jeanne Lopatto said last week. "Instability in the oil market hurts producing and consuming countries alike."
But OPEC nonetheless underlined the temporary nature of the increase, saying that the adjusted ceiling will be reviewed at its next meeting on Mar. 11.
Initial market reaction
OPEC's decision to hike its production, however, showed signs last week of not having as large an impact on oil prices as anticipated.
Crude oil futures prices rallied on New York and London markets early in the week following OPEC's announcement. Traders said the additional production might not be enough to deal with a supply shortage and might not be enough to bring prices down.
Mexico, a major non-OPEC producer and a key oil supplier for the US, said it would raise its crude exports to 1.88 million b/d effective Feb. 1. But analysts said the OPEC move still is probably too little and too late to fix a supply shortage caused by Venezuela's crisis.
