OPEC agrees to 708,000 b/d output hike

The Organization of Petroleum Exporting Countries quickly agreed Wednesday to increase its oil production another 3%, or 708,000 b/d, to a total 25.4 million b/d, effective July 1. That increase apparently was a mid-point compromise between a smaller hike of 500,000 b/d, preferred by Venezuela and Iran, and a bigger bump of 900,000 b/d, which Saudi Arabia and some other members reportedly favored.

Jun 21st, 2000


Sam Fletcher
OGJ Online

The Organization of Petroleum Exporting Countries quickly agreed Wednesday to increase its oil production another 3%, or 708,000 b/d, to a total 25.4 million b/d, effective July 1. That increase apparently was a mid-point compromise between a smaller hike of 500,000 b/d, preferred by Venezuela and Iran, and a bigger bump of 900,000 b/d, which Saudi Arabia and some other members reportedly favored.

Even before the brief 90-min meeting Wednesday of OPEC oil ministers in Vienna, analysts were saying the market had already factored in an expected increase of 500,000 b/d.

With some OPEC members already exceeding their previous production quotas by an amount close to their new quotas, the increase actually would add only 200,000 fresh barrels to the daily market. But if OPEC members follow their usual pattern of cheating on individual production quotas, the result could be an effective increase of 1 million b/d or more.

Either way, analysts say the latest production increase will likely have little immediate impact on US gasoline prices this summer, in a market plagued by low inventories of the new reformulated gasoline mandated for major cities by the Environmental Protection Agency (OGJ Online, June 21, 2000).

In announcing the production increase, OPEC Conference Pres. Al�odr�ez Araque, energy minister of Venezuela, took a slap at various government policies that OPEC members claim are the real culprits behind rising gasoline prices in consumer nations.

Crude stock levels remain "adequate," he said, but "legislative introduction of reformulated gasoline has resulted in supply bottlenecks" that drove up US gasoline prices. He also blamed high pump prices on market speculators in general and on domestic taxes on gasoline in Western Europe, "amounting to as much as 70% of the price to the final consumer."

Those same charges were voiced by Rilwanu Lukman, OPEC's secretary general, at the World Petroleum Congress in Calgary last week. (OGJ Online, June 14, 2000).

Oil prices continued to climb Wednesday afternoon with oil futures trading at $31.35/bbl on the New York Mercantile Exchange, up 70� from Tuesday's close. The July contract expired Tuesday at a 3.5-month high of $33.05/bbl.

In London on the International Petroleum Exchange, North Sea Brent crude was trading at $29.40/bbl, up 38�.

The new production quotas are listed at the end of this story.

Supply threats
Meanwhile, there apparently has been no settlement of a labor dispute that could effectively knock out Norway's production of some 3.2 million b/d by this weekend. Norway's oil company association threatened Monday to lock out more than 2,600 offshore oil field workers by midnight Friday if that dispute over retirement ages is not resolved.

The US pump price for regular unleaded gasoline averaged $1.681/gal this week, up 5� from the previous week.

The US Federal Trade Commission launched an investigation into possible corporate gouging in the Midwest area around Chicago and Milwaukee where pump prices for reformulated gasoline have exceeded $2/gal, compared with $1.87/gal for conventional regular unleaded.

Industry officials claim the price spike is a result of low inventories, problems with a Michigan pipeline, and the higher costs of producing and transporting reformulated gasoline.

Vice-President Al Gore is among those calling for an investigation of possible price-fixing by the industry, while administration officials continue to deny that the US Environmental Protection Agency mandate could be part of the problem, for fear of hurting Gore's presidential bid.

A 7% increase in OPEC production to nearly 24.7 million b/d in March failed to stem rising prices. Iran participated unofficially in that increase, although it refused to sign the formal agreement out of anger at what it saw as heavy-handed US intervention. Iran apparently signed the latest agreement, however.

Both agreements exclude Iraq, which was never part of the last year's production cuts that sparked a resurgence in oil prices. In fact, changes in United Nations sanctions against Iraq permitted an almost 20% increase in its production.

Nevertheless, Iraqi officials urged OPEC members this week not to feel pressured to boost production.

OPEC�s new oil production quotas, 1,000 b/d
Algeria, 811
Indonesia, 1,317
Iran, 3,727
Iraq, �
Kuwait1, 2,037
Libya, 1,361
Nigeria, 2,091
Qatar, 658
Saudi Arabia1, 8,253
UAE, 2,219
Venezuela, 2,926
Total, 22,9762
Total OPEC 103, 25,400

Existing quotas (April 2000)
Algeria, 788
Indonesia, 1,280
Iran, 3,623
Iraq,�
Kuwait1, 1,980
Libya, 1,323
Nigeria, 2,033
Qatar, 640
Saudi Arabia1, 8,023
UAE, 2,157
Venezuela, 2,845
Total, 24,692
Total OPEC 103, 24,692

1. Includes 50% share of Neutral Zone output which is estimated to have averaged 630,000 b/d in February, March, and April 2000. 2. Iran is not party to the Mar. 27 agreement to increase production starting Apr. 1 but announced it would increase its output to the level quota that would have been allocated. 3. Excludes Iraq.

Sources: Middle East Economic Survey, OPEC News Agency.

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