As Prices Surge Again, OPEC Plans to Allow Extra Oil Output - New York Times
As Prices Surge Again, OPEC Plans to Allow Extra Oil Output - New York Times
September 19, 2005
As Prices Surge Again, OPEC Plans to Allow Extra Oil Output
By JAD MOUAWAD
VIENNA, Sept. 19 - OPEC delegates said today that the group planned to allow its members to provide up to two million barrels a day of extra crude oil "if the market needs it," effectively setting aside the group's two-decades-long quota system in order to tame surging oil prices.
The highly unusual decision to put on call an extra 7 percent of its production is expected to be formally announced Tuesday, at the end of the group's two-day meeting here. Some oil ministers said the Organization of Petroleum Exporting Countries wanted to show it was doing all it could to help lower oil prices even as they blamed refining shortages for the current situation.
But the attention of oil traders was focused today on news that Tropical Storm Rita, the 17th named storm of the Atlantic hurricane season, was making its way towards the Gulf of Mexico. These reports pushed up oil and gasoline prices on the New York Mercantile Exchange. This afternoon, crude oil for October delivery surged $4.39, or 7 percent, to $67.39 a barrel. October gasoline jumped 25.76 cents, or 14.4 percent, to $2.0427 a gallon.
Several major oil companies said they were evacuating some employees from offshore oil platforms in anticipation of the storm, which the National Hurricane Center was quickly "nearing hurricane strength" over the Bahamas this afternoon. Forecasters issued a hurricane warning for parts of southern Florida and said the storm could by make landfall on the Texas coast near Houston, an area that is home to many refineries, petrochemical plants and a major port, by the end of the week.
Under the OPEC proposal, which members discussed in meetings today, the organization's producers would provide as much oil as refineries and other buyers ask for, without regards to previous production limits or quotas. The production ceiling, currently set at 28 million barrels a day and shared by all 11 members except Iraq, would theoretically remain unchanged.
"The crude is available," Ali al-Naimi, Saudi Arabia's oil minister, told reporters in Vienna. "If you want it, here it is."
OPEC's plan, proposed by Sheik Ahmad Fahad al-Ahmad al-Sabah, the group's current president and the oil minister from Kuwait, has the backing of Saudi Arabia, OPEC's largest producer, which would provide 75 percent of the additional oil.
Indeed, the proposal is largely shaped around an earlier pledge by Saudi Arabia to open its taps fully to consumers who asked for more oil.
Saudi Arabia's commitment to the nation's oil output up to its full limit of 11 million barrels a day, up from 9.5 million barrels now, was repeated after Hurricane Katrina interrupted oil production from the Gulf of Mexico three weeks ago, sending crude oil above $70 a barrel.
But the divergence between the oil market's focus and OPEC's plans illustrates the group's problem.
Many delegates here emphasized repeatedly that the real shortfall in energy markets was not one of crude oil but of refining capacity - the current inability of refiners to turn oil into sufficient quantities of gasoline and other products like diesel or jet fuel.
"There is no issue with crude oil supplies," said Abdullah bin Hamad al-Attiyah, the oil minister from Qatar. "The real shortfall is in refineries, especially in the United States. We can do everything we can, except we can't interfere with the nature of the problem."
Still, he said OPEC hoped to strike a psychological point with oil traders who have been bidding up oil prices over the past two years largely on the assumption that the growth in demand was outstripping the ability of suppliers to bring more oil on the market. That has led to a doubling in oil prices over the past two years.
OPEC also wanted to respond to mounting criticism from consuming nations, especially in Europe, who have put pressure for OPEC to act more forcefully. Many are beginning to worry that high oil prices might slow growth and hurt the global economy.
According to OPEC's most recent statistics, the group pumps about 28.2 million barrels of oil a day, about a third of global production and 40 percent of global exports.
Since 2003, OPEC producers have increased their output by 10 percent to make up for a 5 percent jump in global oil demand. That increase leaves only one OPEC members, Saudi Arabia, with large spare capacity. Sheik Ahmad, the OPEC president, said Nigeria, the United Arab Emirates and Libya could provide an extra 400,000 barrels a day by December.
At their meeting today, OPEC's ministers also discussed their long-term strategy and make their investment plans more transparent. The group dropped an earlier suggestion to raise the production ceiling by 500,000 barrels a day, an idea that had been floated by some OPEC officials in the days leading to the meeting.
"We will collectively make a pledge to have the spare capacity available if needed, but I don't believe it is needed," Edmund Daukoru, Nigeria's oil minister, told reporters.
To illustrate the availability of oil on the market, many pointed out that the United States Energy Department had recently found buyers for only 11 million barrels of crude oil from the nation's strategic reserves, just a third of the amount it had put on sale.
"It proves there is no need for oil," Mr. Attiyah of Qatar said. "There is a need for products."
At the White House today, President Bush said he welcomed a release of more oil by OPEC members because it would help lower retail gasoline prices by increasing supply.
"I have been concerned about the price at the pump that our folks are paying," Mr. Bush said. "Part of that was caused by the disruptions of Hurricane Katrina. We dealt with that by suspending rules and regulations that enable us to import more gasoline. But part of the cost of gasoline is a result of high crude oil prices, and one way to affect those prices is to conserve and the other way is to encourage an increased supply."
Hurricane Katrina crippled the United States' main oil and gas production region, sending energy markets into a tailspin. But perhaps of greater concern for energy markets, it caused the shutdown for four major refineries along the Gulf Coast. These refineries, which can process nearly 900,000 barrels a day, or 5 percent of American capacity, are likely to be out of commission for months.
The refining crunch in the United States caused gasoline supplies to dip, led to spot shortages in some corners of the country, and pushed gasoline prices above $3 a gallon nationwide for the first time.
As a response to that shock, consuming nations dipped into their oil reserves to make up for the production shortfall from the Gulf of Mexico. The crisis prompted the Bush administration to tap into the nation's strategic stocks, something it had always been very reluctant to do.
In addition, the International Energy Agency, which usually provides advice on energy policies to 26 industrialized nations, activated its emergency oil plan, releasing oil for only the second time in its 29-year history.
But in New York, oil traders were concerned that the strengthening Tropical Storm Rita could hit the Gulf of Mexico at a time when more than half the oil production there still remained shut following the impact of Hurricane Katrina. In preparation for the storm, energy companies had evacuated 3.73 percent of rigs in the gulf as of 12:30 p.m. Eastern time today, up from 1.49 percent on Friday, according to the Interior Department.
Officials from Royal Dutch Shell and Chevron said they had started removing some employees from platforms and rigs and were closely watching the storm to see if more evacuations were needed.
Murphy Oil, an independent producer, said it was clearing equipment off platforms today and would start evacuating employees on Tuesday. "If the crews are evacuated that does hamper any efforts that we have underway" to repair facilities damaged by Katrina, said Dory Stiles, a spokesman for Murphy.
Ray Carbone, an oil trader at Paramount Options, told Bloomberg Television: "This storm has put the OPEC meeting into the back seat - and marginalized it." Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation, said OPEC members "want to appear to be responsible but the tools that they have in the bag render them largely impotent for the moment."
September 19, 2005
As Prices Surge Again, OPEC Plans to Allow Extra Oil Output
By JAD MOUAWAD
VIENNA, Sept. 19 - OPEC delegates said today that the group planned to allow its members to provide up to two million barrels a day of extra crude oil "if the market needs it," effectively setting aside the group's two-decades-long quota system in order to tame surging oil prices.
The highly unusual decision to put on call an extra 7 percent of its production is expected to be formally announced Tuesday, at the end of the group's two-day meeting here. Some oil ministers said the Organization of Petroleum Exporting Countries wanted to show it was doing all it could to help lower oil prices even as they blamed refining shortages for the current situation.
But the attention of oil traders was focused today on news that Tropical Storm Rita, the 17th named storm of the Atlantic hurricane season, was making its way towards the Gulf of Mexico. These reports pushed up oil and gasoline prices on the New York Mercantile Exchange. This afternoon, crude oil for October delivery surged $4.39, or 7 percent, to $67.39 a barrel. October gasoline jumped 25.76 cents, or 14.4 percent, to $2.0427 a gallon.
Several major oil companies said they were evacuating some employees from offshore oil platforms in anticipation of the storm, which the National Hurricane Center was quickly "nearing hurricane strength" over the Bahamas this afternoon. Forecasters issued a hurricane warning for parts of southern Florida and said the storm could by make landfall on the Texas coast near Houston, an area that is home to many refineries, petrochemical plants and a major port, by the end of the week.
Under the OPEC proposal, which members discussed in meetings today, the organization's producers would provide as much oil as refineries and other buyers ask for, without regards to previous production limits or quotas. The production ceiling, currently set at 28 million barrels a day and shared by all 11 members except Iraq, would theoretically remain unchanged.
"The crude is available," Ali al-Naimi, Saudi Arabia's oil minister, told reporters in Vienna. "If you want it, here it is."
OPEC's plan, proposed by Sheik Ahmad Fahad al-Ahmad al-Sabah, the group's current president and the oil minister from Kuwait, has the backing of Saudi Arabia, OPEC's largest producer, which would provide 75 percent of the additional oil.
Indeed, the proposal is largely shaped around an earlier pledge by Saudi Arabia to open its taps fully to consumers who asked for more oil.
Saudi Arabia's commitment to the nation's oil output up to its full limit of 11 million barrels a day, up from 9.5 million barrels now, was repeated after Hurricane Katrina interrupted oil production from the Gulf of Mexico three weeks ago, sending crude oil above $70 a barrel.
But the divergence between the oil market's focus and OPEC's plans illustrates the group's problem.
Many delegates here emphasized repeatedly that the real shortfall in energy markets was not one of crude oil but of refining capacity - the current inability of refiners to turn oil into sufficient quantities of gasoline and other products like diesel or jet fuel.
"There is no issue with crude oil supplies," said Abdullah bin Hamad al-Attiyah, the oil minister from Qatar. "The real shortfall is in refineries, especially in the United States. We can do everything we can, except we can't interfere with the nature of the problem."
Still, he said OPEC hoped to strike a psychological point with oil traders who have been bidding up oil prices over the past two years largely on the assumption that the growth in demand was outstripping the ability of suppliers to bring more oil on the market. That has led to a doubling in oil prices over the past two years.
OPEC also wanted to respond to mounting criticism from consuming nations, especially in Europe, who have put pressure for OPEC to act more forcefully. Many are beginning to worry that high oil prices might slow growth and hurt the global economy.
According to OPEC's most recent statistics, the group pumps about 28.2 million barrels of oil a day, about a third of global production and 40 percent of global exports.
Since 2003, OPEC producers have increased their output by 10 percent to make up for a 5 percent jump in global oil demand. That increase leaves only one OPEC members, Saudi Arabia, with large spare capacity. Sheik Ahmad, the OPEC president, said Nigeria, the United Arab Emirates and Libya could provide an extra 400,000 barrels a day by December.
At their meeting today, OPEC's ministers also discussed their long-term strategy and make their investment plans more transparent. The group dropped an earlier suggestion to raise the production ceiling by 500,000 barrels a day, an idea that had been floated by some OPEC officials in the days leading to the meeting.
"We will collectively make a pledge to have the spare capacity available if needed, but I don't believe it is needed," Edmund Daukoru, Nigeria's oil minister, told reporters.
To illustrate the availability of oil on the market, many pointed out that the United States Energy Department had recently found buyers for only 11 million barrels of crude oil from the nation's strategic reserves, just a third of the amount it had put on sale.
"It proves there is no need for oil," Mr. Attiyah of Qatar said. "There is a need for products."
At the White House today, President Bush said he welcomed a release of more oil by OPEC members because it would help lower retail gasoline prices by increasing supply.
"I have been concerned about the price at the pump that our folks are paying," Mr. Bush said. "Part of that was caused by the disruptions of Hurricane Katrina. We dealt with that by suspending rules and regulations that enable us to import more gasoline. But part of the cost of gasoline is a result of high crude oil prices, and one way to affect those prices is to conserve and the other way is to encourage an increased supply."
Hurricane Katrina crippled the United States' main oil and gas production region, sending energy markets into a tailspin. But perhaps of greater concern for energy markets, it caused the shutdown for four major refineries along the Gulf Coast. These refineries, which can process nearly 900,000 barrels a day, or 5 percent of American capacity, are likely to be out of commission for months.
The refining crunch in the United States caused gasoline supplies to dip, led to spot shortages in some corners of the country, and pushed gasoline prices above $3 a gallon nationwide for the first time.
As a response to that shock, consuming nations dipped into their oil reserves to make up for the production shortfall from the Gulf of Mexico. The crisis prompted the Bush administration to tap into the nation's strategic stocks, something it had always been very reluctant to do.
In addition, the International Energy Agency, which usually provides advice on energy policies to 26 industrialized nations, activated its emergency oil plan, releasing oil for only the second time in its 29-year history.
But in New York, oil traders were concerned that the strengthening Tropical Storm Rita could hit the Gulf of Mexico at a time when more than half the oil production there still remained shut following the impact of Hurricane Katrina. In preparation for the storm, energy companies had evacuated 3.73 percent of rigs in the gulf as of 12:30 p.m. Eastern time today, up from 1.49 percent on Friday, according to the Interior Department.
Officials from Royal Dutch Shell and Chevron said they had started removing some employees from platforms and rigs and were closely watching the storm to see if more evacuations were needed.
Murphy Oil, an independent producer, said it was clearing equipment off platforms today and would start evacuating employees on Tuesday. "If the crews are evacuated that does hamper any efforts that we have underway" to repair facilities damaged by Katrina, said Dory Stiles, a spokesman for Murphy.
Ray Carbone, an oil trader at Paramount Options, told Bloomberg Television: "This storm has put the OPEC meeting into the back seat - and marginalized it." Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation, said OPEC members "want to appear to be responsible but the tools that they have in the bag render them largely impotent for the moment."
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