Arab oil ministers see no need to increase output Filed: 02/25/2000

By Sean Evers c.2000 Bloomberg News

Muscat, Oman, Feb. 24 (Bloomberg)  Arab oil ministers from the Persian Gulf yesterday saw no need to increase crude output in April, though declining inventories or a surge in prices could lead OPEC to pump more oil, a member at the meeting said.

The Gulf Cooperation Council, which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain met yesterday and said only the group would ensure oil prices remain in check. Some analysts had expected the group would recommend the Organization of Petroleum Exporting Countries boost output.

"We studied the issue of increasing production," said Mohammed al-Rumhy, Oman's oil minister, Oman's official ONA news agency reported. "However, figures showed that there isn't a need to increase at present. The next few weeks will decide the future of the oil markets."

With oil in New York near $30 a barrel, OPEC faces increasing pressure from Western importers to increase output after it meets in Vienna on March 27. U.S. Energy Secretary Bill Richardson visited Kuwait today and will travel to Saudi Arabia, the world's biggest oil producer, to press for more oil.

Oil prices have surged after OPEC, along with other exporters such as Oman, last March agreed to remove almost 7 percent of daily crude supply from world markets to end an oil glut. As inventories thinned, prices surged from less than $10 in December 1998 to more than $27 in London today.

Goals

The six ministers will meet again ahead of the OPEC meeting to reconsider their position. The group expressed support for an oil price of $20 to $25 a barrel, which is "in the interest of both producers and consumers," al-Rumhy said.

While many members say there is currently no need to open the taps, declining world oil inventories by March 27 may lead OPEC to move. Oil companies in industrialized nations at the end of December held 2.53 billion barrels, the lowest for that date in a decade, the International Energy Agency estimated. Supplies will drop further in the first quarter, the IEA said.

Oil producers appear divided on the timing and extent of any increase in quotas. Yet the most vocal proponent of keeping the current targets, Kuwait, today appeared to soften its stance after meeting with Richardson.

"The situation has to be decided at the OPEC meeting in March," said Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah. "We have a vested interest in the U.S. economy  we don't want to see anything that might restrict its growth."

When asked if he still supported an extension to current quotas, the minister declined to comment.

Politics

In a U.S. presidential election year, oil prices have become a topic of debate. American motorists have seen gasoline prices jump more than 50 percent in the past year to the highest level in almost 19 years, the Department of Energy reported this week.

Even so, U.S. inflation remains largely dormant. In January consumer prices were 2.7 percent higher than a year earlier, according to the overall Consumer Price Index.

In the end, even if OPEC keeps its current plan, members of the group admit that compliance with quotas would likely decline, meaning more oil is available in the market.

"It's very unlikely that we will see an increase in production before September, even an incremental one," said an official with the Kuwaiti oil ministry. "If the market needs more oil, you will probably see compliance levels slipping, as they have been over the last few months."

http://www.bakersfield.com/oil/i--1260653043.asp

-- Martin Thompson (mthom1927@aol.com), February 25, 2000

Answers

What is the flow chain from production of crude oil from wells through processing to disstribution of gasoline? Why are gasoline reserves so low in the USA; are the refineries not getting crude, or are too many refineries not functioning as they should? The media news seems to assume an automatic connection between a limit of crude production and shortage of gasoline and high prices of gasoline. I question this assumption.

-- Larry Victor (nuu@azstarnet.com), February 26, 2000.

A very very good question. As a strategy professor, I teach about "process management" and "value chain". Regrettably, oil is not one of the industries I follow (Internet and telecom are, but we have heard less about them other than denial-of-service, etc.) But given that we were told oil was "stockpiling" prior to rollover, and we have had one of the warmest winters on record, then this all seems a bit bizarre.

-- Bud Hamilton (budham@hotmail.com), February 29, 2000.