AP Worldstream: OPEC weighs output increase amid Hurricane Ivan, insurgents' attack in Iraq: “Shell began pulling workers off its platforms Sunday. BP and others followed suit Monday” (ShellNews.net)

MATT MOORE

Sep 15, 2004

OPEC members have split on whether their output should be increased in a bid to boost global supply that might cause oil prices to drop.

Elsewhere Tuesday, traders were unnerved by Hurricane Ivan heading toward the oil and natural gas rigs in the Gulf of Mexico and an attack by insurgents on a crucial pipeline juncture in Iraq that showed the country's vulnerability.

Some members of the 11-nation Organization of Petroleum Exporting Countries echoed their support for increasing global supply, including oil giant Saudi Arabia, which confirmed that existing quotas were not being observed.

"OPEC is doing its part, but OPEC is not the only player in town and people do want to make money," Saudi Oil Minister Ali Naimi said Tuesday. "They know there is no better way to make it than to do what they are doing in the market. There is not much that we can do."

Oil prices have soared in recent months because of the extremely thin margin of spare output capacity worldwide and fears of supply disruptions around the globe.

The two main issues being considered at the meeting are whether to increase quotas and whether to raise the price band, said Leo Drollas, chief economist for the London-based Center for Global Energy Studies.

"Both issues are not relevant today because the market is still tight and most OPEC countries are very near capacity. ... There's nothing they can do or say" to change the market, he said, describing the meeting as "a bit of a nonevent."

Late Tuesday, an OPEC panel decided to recommend that ministers raise their output ceiling by 500,000 barrels a day, delegates said. The panel, which will present the proposal on Wednesday, also suggested that the group meet again in November or December to assess the market.

Predicting that prices would stay at current high levels through the end of the year, Drollas said "the demand side drives the prices, rather than the supply side."

Nigeria's OPEC representative, Edmund Dakoru, said he wanted the OPEC price band to be raised to US$30-$40 from its current US$22-$28.

"The market is well-supplied," he said.

In trading Tuesday, Hurricane Ivan was blamed for a rise in crude future prices. Analysts said that regardless of where the hurricane made landfall, its size was sure to threaten many oil rigs and platforms off the coast of the United States. Several rigs in the Gulf of Mexico have been evacuated and production halted as Ivan moved north.

Jan Stuart, head of energy research at FIMAT USA, a brokerage unit of Societe Generale, said Shell began pulling workers off its platforms Sunday. BP and others followed suit Monday.

"Today, we started to shut down refineries. We now know that there is going to be a crude oil production shutdown and a product output shutdown," he told The Associated Press. "And then, you have to check the damage."

Light sweet crude futures for October delivery rose 52 U.S. cents to settle at US $44.39 on the New York Mercantile Exchange. On London's International Petroleum Exchange, Brent crude futures closed up 67 U.S. cents at US$41.73, off its intraday high of US$42.02.

Traders also reacted to Tuesday's attack in Iraq.

As OPEC members arrived in Vienna for Wednesday's meeting, saboteurs in Iraq blew up a junction where multiple oil pipelines cross the Tigris River near Beiji, 155 miles (250 kilometers) north of Baghdad. The blast left the entire country without power.

In Vienna, Iraqi Oil Minister Thamer al-Ghadhban said his country would try to maintain its production of more than 2.5 million barrels of oil a day, 2 million of which is exported daily. But he did not say how.

"I'm confident security will be improved," al-Ghadhban said.

Iraqi officials have been struggling to guard their vast oil infrastructure, but insurgents have largely acted with impunity _ and often with apparent inside knowledge.

A long-term interruption of Iraqi production would be felt by buyers and consumers, Drollas said.

"Any attack will push up the price until the market hears that it's being fixed," he said, adding that if the production of Iraqi oil was halted for a long period of time, prices could top US$40 a barrel.

But the disruption of Iraq's oil production was not expected to hinder OPEC decision-making.

Naimi said the cartel believed the market was being driven by fear rather than substance, adding that OPEC has been producing more than enough oil to meet growing demand.

Libya's OPEC governor, Hammouda el-Aswad, said fears of a price slide would render an increase in quotas irresponsible.

He said his country, which was freed of sanctions earlier this year, is pumping nearly 1.75 million barrels a day and expects to increase that by 300,000 barrels by 2006.

OPEC members will consider the idea of raising output by 2 million barrels a day, or more than 7 percent.

If approved, the decision would increase OPEC's self-imposed output limit for all its members, except Iraq, from 26 million barrels a day to 28 million barrels, bringing the cartel in line with actual output, which stands at more than 27.4 million barrels.

But analysts said the global supply cushion is thin because OPEC vastly underestimated the growth of demand this year, particularly in China and the United States. Now it seems the group lacks the ability to increase production quickly enough to bring prices down.