Oil Prices May Jump Unless Production Rises

Crude oil prices will jump in the last quarter of the year, crimping a recovery in the world economy, unless OPEC agrees to increase production, oil traders and analysts said.

Oil inventories in the United States, the top energy consumer, are 1.5% below year-ago levels as the fourth-quarter peak in demand nears. Brent crude oil has risen 38% to $27.47 a barrel this year, buoyed by OPEC supply curbs and concern that supply may be disrupted should the U.S. attack Iraq.

“The market is slowly tightening up,” said Leo Drollas, deputy director of the Centre for Global Energy Studies, which was founded by former Saudi oil minister Sheikh Zaki Yamani. “With no change in output, we are looking at an average of more than $29 a barrel in the fourth quarter.”

The Organization of the Petroleum Exporting Countries meets Sept. 19 to consider its first output increase for two years. OPEC has cut its official output to the lowest since 1991 to bolster prices and respond to slowing demand.

OPEC Secretary General Alvaro Silva, in Johannesburg for the Earth Summit on sustainable development, on Friday said the group will “maintain stability” in oil markets, seeking to dispel concern of a shortage should the U.S. attack Iraq.

OPEC’s oil price recently fetched $26.53 a barrel, within the group’s target range of $22 to $28 and more than an average since 1997 of about $20.40. Oil provides as much as 95% of OPEC members’ foreign exchange earnings.

The U.S. Energy Department, in its most recent outlook, said OPEC needs to pump more this year to prevent its oil price from surging above $28, equating to at least $30 a barrel in New York.