Sam Fletcher
Senior Writer
HOUSTON, Mar. 16 -- At Saudi Arabia's insistence, the Organization of Petroleum Exporting Countries agreed Mar. 16 to raise immediately its official production quota by 500,000 b/d to 27.5 million b/d.
That action came after the average price of OPEC's basket of seven benchmark crudes climbed by 62¢ to a new record high of $50.21/bbl on Mar. 15.
OPEC's increased quota is unlikely to have much effect on world crude markets, however, since it's still slightly below the group's acknowledged current production of 27.7 million b/d among the 10 affected members, minus Iraq, which is still trying to revive its production to prewar levels. Saudi Arabia already has raised its production by 250,000 b/d to 9.5 million b/d this month and plans to increase it further in April. However, much of the kingdom's spare production is heavy, high-sulfur crude that is more difficult to refine.
OPEC members gave Conference President Ahmad Fahad Al-Ahmad Al-Sabah, Kuwait's energy minister, the authority to boost the group's quota by an additional 500,000 b/d should oil prices remain at the current high level prior to their next meeting June 7 in Vienna.
"This move is exactly what Saudi Arabia was advocating in recent days," said analysts in the Houston office of Raymond James & Associates Inc. "Saudi influence (along with pressure from the US and Europe) seems to have trumped the concerns of the 'price hawks,' such as Iran and Libya, that oil prices could come under pressure in the next few months. On a seasonal basis, global oil demand generally weakens in the spring."
The key point, analysts said, "is that this decision is really not material for the oil market." The higher quota "is likely to merely legitimize existing overproduction, which we estimate was about 1 million b/d [minus Iraq] before today's decision," they said.
Raymond James analysts reported, "Over the past year, the Saudis have shown a willingness to ignore quotas completely at times. There is little doubt that their output policy—which in the final analysis is what really matters for the oil market—will continue to be set independently of any OPEC decisions."
They noted that Saudi Arabia and Kuwait have said they together could bring as much as 700,000 b/d of incremental production to market over the next few months. "But of course this oil is sour, i.e., high in sulfur and therefore much more costly and difficult to refine," said analysts. As a result, they said, "The oil market can be expected to stay tight over the foreseeable future."
Energy prices
The April contract for benchmark US light, sweet crudes closed at $55.05/bbl, up by 10¢ for the day after trading as high as $55.45/bbl Mar. 15 on the New York Mercantile Exchange, while the May contract was unchanged at $55.65/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 10¢ to $55.05/bbl. Heating oil for April delivery gained 1.6¢ to $1.55/gal on NYMEX. Gasoline for the same month inched up by 0.08¢ to $1.507/gal.
The April natural gas contact increased by 4.1¢ to $7.18/MMbtu on NYMEX, "after some early weakness, backed by a modest gain in crude oil and cool Northeast and Midwest weather forecasts that have firmed the cash [spot natural gas] market," said analysts at Enerfax Daily.
In London, the April contract for North Sea Brent crude gained 19¢ to $53.85/bbl on the International Petroleum Exchange.
Contact Sam Fletcher at [email protected]
