31 Oct 2000

OPEC hikes oil output, fails to curb price

By William Maclean

LONDON, Oct 30 (Reuters) - OPEC said on Monday it would raise production by two percent on Tuesday to curb a price rally stoking fears of inflationary damage to the world economy.

Analysts said the rise was unlikely to make much difference to the volume of physical supply because most members, apart from OPEC kingpin Saudi Arabia, were already pumping flat out.

International crude markets appeared sceptical about the cartel's fourth output rise this year, pushing benchmark Brent crude up 19 cents to $31.16 a barrel as the market closed early due to commuter chaos in London after a severe weekend storm.

Brent had fallen a dollar on Friday on expectations of the move. U.S. light crude was 48 cents higher on Monday at $33.22.

Markets were concentrating instead on discussions at the U.N.'s Iraq sanctions committee on Iraq's plan to have customers pay for its oil in euros rather than dollars from November 1.

Baghdad has signalled it will halt sales worth five percent of international crude trade if its request is not met, although it will accept dollars for oil loading very early in November.

Dealers are also watching weather forecasts for signs of any winter cold snap that could send heating oil prices higher at a time when stocks of surplus petroleum are near 24-year lows.

Dealers took in their stride a statement by the Organisation of the Petroleum Exporting Countries saying OPEC President Ali Rodriguez had written to members asking that steps be taken for a 500,000 barrels per day (bpd) output hike from Tuesday.

NOT MUCH EXTRA OIL

"I don't think the hike will lead to any significant increase in barrels," said Gary Ross, chief executive of Pira Energy Group, referring to the latest hike.

Iran, Kuwait, Algeria and Qatar said they would contribute to the increase in line with the cartel's price stability pact. Saudi Arabia also already has made clear it supports the additional supply.

"Iran will proceed with the earlier decision of OPEC and supply our share of the increase," Iran's OPEC governor Hossein Kazempour Ardebili told Reuters in Dubai.

Already producing more than at any time in the past 20 years, some OPEC members say global crude supply is already more than sufficient to meet world demand.

The 11-nation cartel pumps two thirds of internationally traded oil and about 40 percent of world production.

Three previous OPEC increases since March were aimed at quelling a relentless rally that has seen the highest prices since the crisis over Iraq's 1990-91 occupation of Kuwait.

OPEC's action is in line with an informal pact stipulating a hike of 500,000 bpd when the price for a cartel basket of crudes remains above $28 for 20 consecutive working days.

OPEC on Monday announced the trigger point was reached on Friday, when the price closed at $30.91. The hike will create a new 26.7 million bpd official output ceiling by the 10 OPEC members subject to output quotas. The 11th member, sanctions-bound Iraq, plays no part in output restraint.

IRAQ'S EURO PLAY

The cartel is scheduled to review oil markets on November 12 at an extraordinary policy-making meeting.

Independent consultant Petrologistics estimates OPEC is on course to produce 29.51 million bpd in October including around 2.9 million for Iraq. Those numbers imply the OPEC 10 are already producing around the new ceiling.

The threat of imminent disruption to Iraqi oil sales receded on Monday with Iraq accepting dollar-denomination payment for oil loading in the first few days of November.

Last week Iraq panicked dealers by indicating it might halt exports from November 1 if it did not get the go-ahead for a switch to euros from dollars, the currency of world oil trade.

An Iraqi official said dollar letters of credit had been processed for some cargoes loading in the first few days of the month. He declined to say how long dollars would be acceptable.

Industry sources said any delay to Iraq's order for euro payment would not represent a climb down by Baghdad. The time frame for the shift, however, may have been too optimistic.

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-- Martin Thompson (mthom1927@aol.com), October 30, 2000

Answers

Tue, 31 Oct 2000, 8:58am EST OPEC to Boost Oil Output Quota for 4th Time This Year (Update3) By Alex Lawler

Vienna, Oct. 30 (Bloomberg) -- The Organization of Petroleum Exporting Countries said it will boost production for the fourth time this year after past efforts failed to lower oil prices or ease concern that high energy costs will slow economic growth.

OPEC President Ali Rodriguez wrote to the 11 member-nations seeking a daily increase of 500,000 barrels, or 2 percent, in line with an informal agreement last month, according to a statement on the official OPEC News Agency. Output from the group, which pumps a third of the world's oil, already stands at a 21-year high.

Crude oil ended the day little changed at $32.81 a barrel, up 7 cents on the New York Mercantile Exchange. Prices fell more than 2 percent on Friday in anticipation of the quota changes. Saudi Arabia, OPEC's top producer, has indicated a willingness to fill any shortfall from other members to ensure growth in demand and discourage growth in other energy sources.

``This market has a voracious appetite for more oil,'' said Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago. ``Even with this announcement, it's still stuck above $30.''

OPEC is now producing about 29 million barrels a day, and Saudi Arabia and the United Arab Emirates are the only member- nations that possess much extra production capacity, analysts have said. The increase will be made to output quotas for the members who have them, which exclude Iraq.

An oil official in Saudi Arabia welcomed the increase and said the kingdom will participate in accordance with its new target. The official declined to comment on whether Saudi Arabia would compensate for those nations who cannot fulfill their quota.

Crude oil has gained 28 percent this year as U.S. supplies have stayed close to a 24-year low, according to the American Petroleum Institute.

Oil Remains Above $30

The decision comes after OPEC informally agreed in September to add 500,000 barrels to daily quotas if its price benchmark topped $28 a barrel for 20 consecutive trading days after Oct. 1. That condition was met Friday, when the price was $30.91.

``Take the necessary steps to raise your esteemed country's output,'' Rodriguez, who is also Venezuela's oil minister, wrote in the letter to his OPEC counterparts.

In June and September, OPEC postponed raising output under a similar accord until oil ministers met to review the oil market. They are scheduled to meet in Vienna on Nov. 12.

Crude oil in New York has been above $30 a barrel since August, a level the U.S. has called unacceptable. OPEC wants to reduce prices to discourage development of competing energy sources, such as non- OPEC oil fields, solar and wind power.

Rising energy costs have begun to hurt corporate profits. Wienerberger Baustoffindustrie AG, the world's largest brickmaker, today said operating profit at its primary business fell 8 percent in the third quarter amid higher energy expenses and tepid demand in the German construction industry.

``We've had to compensate for that by lowering brick prices,'' said Erhard Schaschl, chief executive of the 181-year- old company, in an interview.

Even so, oil prices, once adjusted for inflation, are around $16.60 a barrel, less than half the $40 seen after the 1979 Iranian Revolution.

Table

Saudi Arabia, Iran, Kuwait, the United Arab Emirates and Algeria said earlier that they would join the output increase. Yet some members may not be able to pump more, Ramzy Salman, an adviser to Qatar's oil minister, said in an interview.

OPEC's statement did not say what members' new production targets would be, though Fernando Garay, an OPEC spokesman, said the increase would be allocated on an equal percentage basis to members, except Iraq.

According to Bloomberg estimates, the new OPEC quotas for Iran and Venezuela, the group's two biggest producers after Saudi Arabia, would exceed sustainable capacity. Iran will ``increase output in line with its share,'' Iranian OPEC governor Hossein Kazempour Ardebili told Tehran radio.

The table below shows expected additional amounts and new quotas, based on the 500,000-barrel-a-day increase. The table, based on each member's share of total supply, also shows sustainable capacity levels, as estimated by Bloomberg.

All figures are in thousands of barrels per day, and rounded up to the nearest whole number. Iraq currently does not participate in OPEC output quotas as the United Nations monitors the country's oil exports.

Current Increase New Estimated Quota Quota Capacity

Saudi Arabia 8,512 162 8,675 10,100 Iran 3,844 73 3,917 3,750 Venezuela 3,019 58 3,076 3,050 Iraq -- -- -- 3,000 U.A.E. 2,289 44 2,333 2,500 Kuwait 2,101 40 2,141 2,300 Nigeria 2,157 41 2,198 2,200 Libya 1,404 27 1,431 1,500 Indonesia 1,359 26 1,385 1,400 Algeria 837 16 853 950 Qatar 679 13 692 760

Total ex-Iraq 26,200 500 26,700 28,510 Total With Iraq 31,510

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-- Martin Thompson (mthom1927@aol.com), October 30, 2000.