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Monday, 30 October, 2000, 23:07 GMT
Oil steady as Opec lifts output
Opec officials at a recent summit in Caracas, Venezuela
Opec output is already very near the new production ceiling
Oil markets reacted calmly on Monday to news that the Organisation of Petroleum Exporting Countries (Opec) would lift output by 500,000 barrels a day in a fresh attempt to cool prices.

The move was in line with an informal agreement among the cartel's members to raise production if the price of a basket of seven crude oils stayed above $28 a barrel for 20 consecutive working days.

US Energy Secretary Bill Richardson welcomed Opec's decision but said he was still concerned about heating oil supplies for the winter.

"We welcome the increase in production which will put needed oil on the market. [But] even with today's announcement, we remain concerned that US consumers are able to heat their homes this winter," he said.

'Insignificant' effects

Analysts said the output rise had been anticipated by the markets and factored into crude prices in late trading last week.

The fact that many Opec members were already producing more than their quotas and at or near full capacity would also limit the move's impact, they said.

One analyst said this meant the actual extra oil that would reach the market would be "pretty insignificant", possibly about 100,000 barrels a day.

However, the initiative was later given a boost when non-Opec Mexico - which has for several years acted in concert with key Opec members - said it would increase oil exports by 300,000 barrels a day from the first quarter of 2001.

The world benchmark Brent blend crude ended at $31.14 a barrel in London trade, up 19 cents from Friday's close.

Saudi contribution

On Friday, prices had fallen by more than $1 a barrel after Opec president Ali Rodriguez said a formal announcement on supplies would be made at midnight on Monday, if prices stayed at more than $28.

Opec member states on Monday said they had received letters from the cartel's administration asking them to raise output on a pro-rata basis from 31 October.

The biggest contribution by a single country will be made by Saudi Arabia - the world's largest crude oil producer and exporter - which has been requested to release another 162,000 barrels a day.

The output rises (barrels a day)
Algeria, 16,000
Indonesia, 26,000
Iran, 73,000
Kuwait, 40,000
Libya, 27,000
Nigeria, 41,000
Qatar, 13,000
Saudi Arabia, 162,000
UAE, 44,000
Venezuela, 58,000
Total, 500,000

The Gulf state is the only world oil producer with significant unused capacity, possibly up to about two million extra barrels a day.

During the 1990-91 Gulf crisis - when Iraq invaded Kuwait - Saudi Arabia responded to the disruption to world supplies by pushing up production by about that amount to more than 10 million barrels a day.

In July this year, its crude oil wellhead output stood at 8.67 million barrels a day - including some 320,000 barrels a day from a neutral zone shared with Kuwait - according to the oil industry newsletter Petroleum Intelligence Weekly.

This was up from 7.86 million barrels a day in February.

Flat out

Opec has itself raised production three times this year in an attempt to take the heat of prices.

However, the moves have been perceived by the market as inadequate, forcing Brent prices to a new 10-year high of more than $35 a barrel earlier this month.

Opec has argued that its members are now pumping virtually flat out and that world demand for crude oil is being met.

Crude prices are being held high partly because of the activity of market speculators while high petrol (gasoline) prices are mainly due to taxes levied by governments and tight product markets, the organisation has contended.

Quotas flouted

Opec's latest agreement will create a new official output ceiling of 26.7 million barrels a day for the organisation's members, excluding Iraq which is not subject to output quotas.

However, as long as prices are not prohibitively low, producers have routinely flouted quotas in an attempt to generate maximum revenue.

Current production is already about 26.6 million barrels a day, excluding Iraq, leaving Opec little scope for raising output, analysts said.

The organisation's members are next scheduled to meet on 12 November, at an extraordinary meeting to review policy.

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24 Oct 00 | Business
Profits surge at oil companies
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