OPEC Expected to Authorize Small Boost in Oil Production
OPEC member nations probably will decide this week to boost oil supplies for the second time this year, though not by enough to ease prices from the highest levels in nine years, analysts said.
The Organization of Petroleum Exporting Countries is expected at its meetings in Vienna to boost daily output by 500,000 to 1 million barrels, or as much as 1.3% of world supply, according to a Bloomberg News survey of analysts. Any less of an increase would cause a surge in prices, which closed above $32 a barrel in New York on Friday.
A decision to hike oil production is likely to shake up U.S. equity markets. No change in current output levels would only increase investor nervousness.
If OPEC boosts output by 500,000 barrels a day, the equity markets likely would respond negatively, except for energy-related stocks.
An output increase of 1 million barrels a day, though, would infuse the equities markets with some positive energy, he said. Anything higher could spark a rally.
While European central bankers have warned that high oil prices threaten economic growth, OPEC members say supplies aren’t as tight as they appear. And producers such as Saudi Arabia still are smarting from a 1998 plunge in prices to below $10 a barrel and are unlikely to risk pumping too much, analysts said.
“OPEC has the fortunate and rare position of being able to increase production just enough so that prices don’t drop drastically,” said Aaron Kildow, an analyst at Prudential Securities in New York. Members will have profits “without looking like the bad guy” to consuming nations, he said.
Crude oil in New York rose $2.13, or 7%, last week to $32.33 a barrel. Prices are up 80% from a year ago, boosting revenue for OPEC’s 11 members, who account for more than one-third of world oil supply. Brent crude oil in London, the European benchmark, rose less than 1% to $28.35 a barrel.
Oil ministers began to arrive in Vienna on Sunday, with the group’s president, Ali Rodriguez of Venezuela, declining to comment on OPEC policy. Last week he said members had already decided whether to boost output, though he declined to be more specific.
A senior Indonesian oil official, Rachmat Sudibyo, director general of oil and gas at the ministry of mines and energy, said last week that all 11 OPEC members are ready to agree to an oil production increase of at least 500,000 barrels a day.
“This is the basic position of all OPEC members,” he said.
An increase of 500,000 barrels a day would likely drive crude prices to $27 to $28 a barrel, analysts said.
In a Bloomberg survey of 22 brokers, traders and analysts last week, three of the respondents expected either no change or an increase of up to 500,000 barrels a day; nine expected an increase of 500,000 barrels; nine saw OPEC adding 500,000 to 1 million barrels; and one expected the group to add more than 1 million barrels to daily output.
Still, the 10 OPEC members that have quotas already were pumping 518,000 barrels a day more than their self-imposed target in May, according to Bloomberg estimates.
Overall OPEC production was pegged at 28.18 million barrels a day, or about 66% of world supply.
Analysts were divided on whether OPEC would agree to actual production increases or would simply raise their self-imposed quotas to reflect current output.
Another argument for boosting production, and keeping oil prices under $30 a barrel, is to ensure that oil demand continues to rise in Asia, one of the world’s fastest-growing regions, analysts said.
Global oil demand is expected to grow 2% this year to about 77 million barrels a day, according to the International Energy Authority. Much of that increase is expected to come from the Asia Pacific region, where demand will expand at least 5%, driven by high-growth markets such as China, India and South Korea, analysts said.
Expensive oil could halt that growth. The rise in oil price in recent weeks has crimped the region’s oil demand and could force Asian economies to turn to alternative forms of fuel such as natural gas.
