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OPEC cancels planned meeting Cartel agrees to make automatic increase in oil output ceiling Bruce Stanley Associated Press Business Writer
With the price of oil stuck above US$40 a barrel, OPEC agreed July 15 to raise its daily production target by 500,000 barrels, or 2 percent, in an effort to keep crude prices from lurching even higher.
The Organization of Petroleum Exporting Countries made the increase automatically, by mutual agreement, and canceled a formal meeting it had planned for its members on July 21 at its headquarters in Vienna, Austria, said an official for the group, speaking from Vienna on condition of anonymity. The increase will take effect Aug. 1.
Although oil-exporting countries are happy to maximize profits, OPEC and its de facto leader Saudi Arabia worry that global economic growth and the long-term demand for crude could suffer if prices spike to punishing heights.
However, few analysts expect the increase in OPEC’s target to do much to reduce prices from current levels. Most of the group’s members are already pumping flat out to satisfy strong demand, and oil markets had already factored the increase into prices. Two-step increase agreed to in June OPEC, which pumps more than a third of the world’s oil, agreed in June to make a two-step increase in its output ceiling, to try to calm concerns about disruptions in oil supplies from Iraq and a possible terror attack on export facilities in Saudi Arabia. The group decided first to raise its ceiling by 2 million barrels on July 1, and agreed to follow up with a second increase of 500,000 barrels on Aug. 1 if market conditions warranted.
“The market conditions these days actually call for the implementation of the second part of the agreement. There is a consensus that the extra 500,000 barrels should be implemented August 1,” the OPEC official said.
A meeting of OPEC representatives to discuss the matter in person would be “a waste of time,” the official added.
OPEC’s production target is now 25.5 million barrels a day. Increase approved; meeting cancelled A senior adviser to one OPEC oil minister confirmed that the June 21 meeting had been canceled and said that the minister would not be traveling to Vienna as originally planned. The adviser, speaking on condition of anonymity, said the minister told OPEC “just to go ahead with the increase.”
Still, the hike will probably have little effect on crude prices. OPEC’s production of actual barrels already far exceeds its new official target. The International Energy Agency, a watchdog for major oil-importing nations, estimates that OPEC produced an average of 26.9 million barrels a day in June — or 3.4 million barrels more than its target at the time.
“It’s almost academic. They’re already producing way over quota,” said John Waterlow of Wood Mackenzie Consultants in Edinburgh, Scotland.
Also, markets had anticipated the 2 percent rise ever since OPEC approved it in principle on June 3 in Beirut, Lebanon.
“The increase itself has been telegraphed in the same fashion that dropping a brick on someone’s toe gives a hint. Whatever impact this is going to have has been already digested in the market for a month and a half,” said Jan Stuart, head of energy research at New York brokerage FIMAT USA.
Contracts of U.S. light crude for August delivery were at US$40.80, down 17 cents, in midday trading July 15 on the New York Mercantile Exchange.
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