Sam Fletcher
Senior Writer
HOUSTON, Sept. 15 -- Members of the Organization of the Petroleum Exporting Countries decided Wednesday in Vienna to boost their production quota by 1 million b/d to a record 27 million b/d, effective Nov. 1.
But since OPEC already is producing 28 million b/d, analysts said that adjustment will likely have less impact on world oil markets than Hurricane Ivan, which is disrupting US production and imports of crude oil and natural gas in the Gulf of Mexico.
The US Minerals Management Service reported Wednesday afternoon that 77.6% of the crude and 49.1% of the natural gas normally produced daily in the Gulf of Mexico had been shut in as Hurricane Ivan advances toward the US Gulf Coast. The shut-in production amounted to 1.3 million b/d of oil and more than 6 bcfd of gas.
MMS said crews were evacuated from 575 of the 764 manned platforms and 69 of the 117 mobile drilling rigs in the gulf. Other sources earlier reported at least 6% of total US refining capacity also was shut down as refineries secured operations in the storm's path or, in some cases, faced the loss of offshore crude supplies.
OPEC lacks impact
OPEC's decision to increase its quota "is not likely to impact production," said Robert S. Morris, Banc of America Securities LLC, New York. "In fact, several OPEC members indicated that the group is currently producing at or near full capacity, although Saudi Arabia plans to raise its capacity by up to 800,000 b/d by month's end," he said.
War-torn Iraq currently is exempt from OPEC's production quota.
"The market continues to look for tangible signs that OPEC intends, and is able, to regain control of prices. The intent may well be there, but the tangible ability does not seem to exist at this time," said analysts Wednesday in the Houston office of Raymond James & Associates Inc., St. Petersburg, Fla.
"A modest surprise was that, contrary to market expectations, OPEC did not arrive at any formal decision on its official price band. It had been thought that ministers would decide—though in principle only—to raise the price band," they said.
"OPEC decided to delay any potential change to its target price band until its next meeting (Dec. 6), which we believe is largely due to Saudi Arabia's unwillingness to increase the price target prior to the November US presidential election," Morris said.
"The decision to raise the price band, if and when it comes, will not be surprising, nor should it have a noticeable impact on market prices," said Raymond James analysts. "Iran's OPEC governor said last week that there is 'consensus' for a $30[/bbl] midpoint," compared with the current range of $22-28/bbl.
However, they noted, "'Consensus' does not imply unanimity. Qatar, for example, is known to favor a somewhat lower band, while Venezuela seems to be pushing for an even more aggressive increase in pricing policy. Libya said yesterday that it supports a band of $28-36[/bbl]."
Possible near-hit by Ivan
Wednesday afternoon, the National Hurricane Center reported Ivan was 170 miles south of the Alabama coastline and moving north at 14 mph. It is expected to make landfall at Mobile Bay, Ala., early Thursday. Hurricane-force winds extended up to 105 miles from the center from the storm, while tropical storm winds stretched outward 290 miles.
"Ivan appears unlikely to track through the heart of the oil-producing region, but it will like hit some of it before making landfall," said Raymond James analysts.
The Gulf of Mexico provides 25% of US oil and gas production, and about half of US refining capacity is concentrated along the Gulf Coast. The Louisiana Offshore Oil Port (LOOP), located in the gulf less than 20 miles southeast of Port Fourchon, La., "has been closed since Monday, along with several Gulf Coast refineries," said Raymond James analysts. LOOP "normally handles 1 million b/d of [crude] imports (10% of total US imports)." Analysts noted, "Roughly 5 million bbl of imports were curtailed due to LOOP being shut down for about 5 days during Hurricanes Isidore and Lili in 2002."
The US Energy Information Administration reported Wednesday that US commercial crude inventories plummeted by 7.1 million bbl to 278.6 million bbl during the week ended Sept. 10. That was "largely due" to a 800,000 b/d drop in crude imports to 9.9 million b/d "as [Hurricanes] Francis and Ivan interrupted crude shipments through the Caribbean from Africa, the Middle East, and South America, while total refinery utilization fell 0.8% to 95.7%," Morris said. "Thus, US crude inventories are now 0.2% below last year but 8.3% below normal," he said.
Meanwhile, Tropical Storm Jeanne forced refiners in the northeastern Caribbean to curtail operations. That storm, which was 25 miles south-southwest of San Juan, Puerto Rico, Wednesday afternoon, is expected to strengthen into a hurricane.
Contact Sam Fletcher at [email protected]
