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OPEC raises oil production limit

 

Beirut, Lebanon – OPEC agreed Thursday to raise its production ceiling by 2  million barrels a day next month in a bid to bring down uncomfortably high prices  of crude, oil ministers said.

The Organization of Petroleum Exporting Countries  also agreed to raise the target by an additional 500,000 barrels a day in August  if necessary, they said.

However, oil analysts said the decision was unlikely  to bring any relief to motorists in the form of cheaper gasoline.

OPEC’s  decision represented a compromise between members, led by influential Saudi Arabia,  who sought an immediate production increase of 2.5 million barrels a day to reach  a ceiling of 26 million barrels and other members, including Iran, who preferred  to raise the ceiling in at least two stages.

"We have decided to lift  the ceiling to 25.5 (million barrels a day) effective July 1 and 26.0 (million  barrels a day) effective August 1 and we will meet to review future action on  July 21 in Vienna," Saudi Oil Minister Ali Naimi said.

OPEC representatives  from Qatar, Nigeria and the United Arab Emirates confirmed the decision before  the group met for a closed-door meeting to ratify it. A formal announcement was  expected later Thursday.

No shortage seen

"We believe there  is not any shortage in the market and we should be very careful about the coming  months," Iranian Oil Minister Bijan Namdar Zangeneh said in explaining the  decision to raise the ceiling in two steps.

However, OPEC did not urge members  to produce more oil. OPEC President Purnomo Yusgiantoro of Indonesia said in his  opening address that members should do "as much as they can to help stabilize  the oil market."

The cartel’s members already are exceeding their quotas  by at least 2.3 million barrels a day, so the ceiling increase of 2.5 million  barrels a day essentially legitimizes that overproduction.

Nigeria’s representative  said the higher ceiling would help reduce prices.

"To act as responsible  members of the world community, we have to make this strong signal to the market  that we are ready to produce to cool the system," Edmund Maduabebe Daukoru  said.

Earlier signals from OPEC, which produces more than a third of the  world’s crude, that it would raise both its ceiling and its output had the desired  effect of lowering record prices. Oil prices plunged 6 percent Wednesday after  the United Arab Emirates and Kuwait pledged to join Saudi Arabia in adding more  barrels to global supplies.

Traders still wary

Prices rebounded  somewhat early Thursday as traders questioned OPEC’s ability to pump enough oil  to calm market fears of terrorists disrupting supplies. In London, contracts of  Brent crude for July delivery were trading 36 cents higher at $37.22 a barrel.

July  contracts of U.S. light crude were up 41 cents at $40.37 in New York. This was  still well short of U.S. crude’s record finish Tuesday, which followed a terrorist  attack in the Saudi oil hub of Khobar that killed 22 people, mostly foreign oil  workers. The attack, which was blamed on al-Qaida gunmen, stunned markets, which  were already nervous about stretched oil inventories and Middle East tensions.

OPEC  officially aims to keep prices between $22 and $28 for its benchmark blend of  crudes. Although OPEC delegates said Thursday the group was not changing its preferred  price target, prices have exceeded the upper limit since December.

One oil  analyst said he expected prices to rise initially because markets were expecting  more from OPEC.

"I think it is a disappointment to the market because  the market was expecting 2.5 million barrels, as the Saudis announced earlier,"  said Falah Aljibury, an energy consultant based in Alamo, Calif.

However,  the need for OPEC to signal that it would add barrels of fresh oil to the market  was even more important than a higher production ceiling, Aljibury said.

 

 

 
 

 

“To  act as responsible members of the world community, we have to make this strong  signal to the market that we are ready to produce to cool the system.”

Edmund  Maduabebe Daukoru
Nigeria’s OPEC representative

 

 

 

Gas remains expensive

Consumers will not be paying less for  gasoline anytime soon, as other factors such as refinery constraints and accelerating  demand during the summer driving season in the United States will have an effect  at the pump.

"Gasoline prices are still going to stay high," said  Jamal Qureshi, of the Washington-based consultancy PFC Energy.

Purnomo said  the high prices stem from "a combination of factors over which OPEC has no  control," including speculation on futures markets, geopolitical concerns  and stronger than expected demand in China and the United States.

Since  arriving in Beirut, OPEC representatives have expressed a common desire to increase  their production ceiling.

Under pressure from the United States and other  major importers, Saudi Arabia already has boosted its actual output by 600,000  barrels a day, independently of OPEC.

The UAE oil minister said his country  would raise production by more than 400,000 barrels per day, and Kuwait said it  would increase its output by 100,000

 

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