[R-P] [FT3 en ingles] Opec raises quotas to deflect criticism

[Marcelo Felipe Gil]

Opec raises quotas to deflect criticism
By Kevin Morrison and Javier Blas in Vienna and James Boxell in London
Published: September 15 2004 10:47 | Last updated: September 16 2004 00:51


Opec increased its oil production quotas by 1m barrels on Wednesday in a
response to high oil prices, but the move was overshadowed by weekly data
showing a sharp fall in US commercial crude oil stocks.

The increase follows intense lobbying by Algeria and Kuwait to lift the
quotas to better reflect actual production by the Organisation of the
Petroleum Exporting Countries and send a signal to oil markets that the oil
cartel is uncomfortable with oil prices above $40. Some Opec ministers
privately described the quota increase as cosmetic and intended to deflect
criticism from oil consuming countries.

Delegates said after Opec's policy meeting that leaving quotas unchanged
could have been interpreted as signalling lack of concern about high oil
prices.

Opec's market analysts have forecast increased demand for the group's oil
during the fourth quarter.

The cartel's decision was overshadowed by a sharp fall in US commercial
crude inventories. Crude stockpiles fell by more than 7m barrels to their
lowest level since March, the seventh week in a row that the inventories of
the world's largest oil consumer and importer have dropped.

That was largely due to the hurricanes in the Gulf of Mexico and the
Caribbean, which have hit oil tanker traffic to the US and domestic oil
output. Lower inventories sent crude futures higher.

Benchmark Brent crude for October delivery gained 12 cents to close in
London at $41.85. In the US, the benchmark crude futures contract shot up
initially but finished 81 cents lower at $43.58 after the government said
Hurricane Ivan's impact on prices could be short-lived if oil facilities
escaped heavy damage.

The latest inventory report contradicted the views of many Opec members who
before their meeting cited fears about a large increase in global oil
inventories as a reason for their reluctance to change the quota.

"We did this to narrow the gap between real production and the quota and
this is what it took to get the consensus," Ali Naimi, the oil minister of
Saudi Arabia, said yesterday.

However, Mr Naimi said the kingdom had no plans to increase production from
its current rate of 9.5m b/d. Saudi Arabia is the only country with
significant spare capacity to increase output. Other Opec members are
producing at their maximum rate as global oil demand rises at its fastest
rate in 28 years.

Opec also decided to meet again in Cairo on December 10, when ministers will
discuss the longer-term price of oil.

That could lead to an increase in Opec's preferred price target range of
$22-$28 a barrel. But no final decision is expected to be made until Opec
meets again in Iran in March.

"Opec recognises that it needs to change the price band, because the
existing one was set back in 2000, and it knows it has to change upwards,
not downwards," said Purnomo Yusgiantoro, the Opec president and Indonesian
oil minister.

This year is the fifth in a row where US crude futures will average more
than $25.

David O'Reilly, chairman and chief executive of ChevronTexaco, said on
Wednesday that Opec had a clear role to play in making sure undercapacity
issues were properly addressed. "When 75 per cent of the reserves are the
hands of oil-producing countries, they clearly have a big responsibility to
supply the market."

However, he disagreed with politicians and industry observers who believe
Opec and the world's largest consuming countries are inherently at odds with
each other. "I don't want to sell Opec short, it is not in their interests
to see markets disrupted or volatility. We should give them credit with
struggling with a difficult equation."