OPEC unlikely to boost oil output

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May 29, 2000, 5:20PM

OPEC unlikely to boost oil output Analysts say exporters at capacity limit

By LIM LE MIN and STEPHEN WISENTHAL Bloomberg Business News

KUALA LUMPUR, Malaysia -- Oil exporters likely will hold off boosting output in June to halt rising prices as some of OPEC's members don't have spare output capacity and won't be able to raise production until the year end, producers said Monday.

Iran, Indonesia and the United Arab Emirates, three of the 11 members of the Organization of the Petroleum Exporting Countries, said they won't back any increase when the group's ministers meet in June. They join top producer Saudi Arabia and other Arab exporters that have said no increase is needed.

"Many of the OPEC members are at their full production capacity right now. It's going to be very difficult for OPEC to agree to increase production," said Marianne Kah, chief economist at Houston-based Conoco, the fourth-largest U.S. oil company.

Producers have come under pressure from Washington and from consumers to pump more amid concern rising prices could stoke inflation and slow world economic growth. Oil prices in London have more than tripled, to $29.22 a barrel, since touching a 12-year-low in December 1998. OPEC members and other exporters agreed in March 1999 to trim output to raise prices.

"We are happy with current prices and we don't think there is a need to increase production in June," said Baihaki Hakam, president director of Indonesia's state-owned oil company PT Pertamina.

Still, OPEC, which produces 40 percent of the world's oil, will have to raise oil output this year to keep its benchmark price from rising beyond the group's target of $22 to $28 a barrel, Mark Moody-Stuart, chairman of Royal Dutch/Shell Group, said Saturday.

"To stay in that band, before next winter you have to increase production," he said.

Iran, OPEC's second-largest producer, said factors other than a shortage of oil were to blame for the price gains and it was not necessary to increase supply.

"Right now, consumers are trying to build up their inventories," said Ahmad Rahgozar, vice president of the National Iranian Oil Co. "In the near future, we will see a decrease (in prices) without an increase in production."

Even so, more oil will be needed to satisfy rising demand as many Asian economies recover from recession.

"This year, between 700,000 and 750,000 barrels a day (additional demand) will come from Asia. That's more than 50 percent of world oil demand growth," said Fereidun Fesharaki, senior fellow at the U.S.-based think tank the East-West Center.

OPEC members are trying to boost capacity in expectation the group will agree to increase output later in the year, Kah said.

"Venezuela and Iran are the two countries that probably will have another 300,000 barrels a day by the end of the year," she said.

Venezuela, OPEC's third-biggest producer, produced 2.85 million barrels a day in April, according to Bloomberg output estimates. Iran pumped 3.65 million barrels daily.

"We have a good amount of capacity to increase if we wanted to," said Rahgozar. "If we get to the point that we have to increase production, even beyond 4 million barrels, it is possible."

In the meantime, OPEC production could creep up as members with spare capacity raise output above their quotas.

"It may be that a better solution is for them to not have a formal agreement but to just ... quietly produce more," Kah said. Saudi Arabia alone could add another 2 million barrels a day within two months, she said, in addition to the 8 million it now produces.

"With limited excess production capacity in most OPEC countries, the balance in the market lies largely in the hands of Saudi Arabia," said the East-West Center's Fesharaki.

If oil prices rise above $30 a barrel, non-OPEC producers will be encouraged to explore for new reserves and pump more barrels, Moody-Stuart said. OPEC members control 90 percent of known reserves.

Unocal Corp., the ninth-biggest U.S. oil company, will base its investment plans on oil fetching $17 a barrel, according to Chairman Roger Beach. That compares with an average price of $14.41 for oil at the New York Mercantile Exchange during 1998.

"Higher prices will never last an extensive time," said Tatsuo Masuda, director of oil markets and emergency preparedness at the International Energy Agency. He said non-OPEC countries would increase output as quickly as they could and that would bring prices back down. "That's the basic strategy of non-OPEC producers."

Even if OPEC keeps output restrained, average prices over the next five to 10 years will be between $15 and $19 a barrel as economic growth in countries such as China, India and Indonesia boosts demand, prompting other producers to find and pump more oil, Shell's Moody-Stuart said.

"The world may need 15 million barrels more oil in 10 years' time, and probably out of those 15 million, at least one-third will come from non-OPEC producers," said Masuda from the IEA, a government-backed adviser to 24 of the world's largest oil-consuming nations.

The two-day Asia Oil & Gas Conference ends today.

http://www.chron.com/cs/CDA/story.hts/business/565180



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


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