Opec considers further output hike

THE ORGANISATION of the Petroleum Exporting Countries (Opec) is considering a second output hike, just a week after the cartel raised its production quota at a meeting in Isfahan, Iran.

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By  Anil Bhoyrul Published  March 27, 2005

THE ORGANISATION of the Petroleum Exporting Countries (Opec) is considering a second output hike, just a week after the cartel raised its production quota at a meeting in Isfahan, Iran. Oil prices hit record highs last week. In New York the US benchmark crude price, West Texas Intermediate, hit a peak of US$57.50 a barrel, up US$1.04, surpassing most forecasts made at the start of the year. The price rise came after Opec’s decision to immediately increase its production ceiling by 500,000 barrels per day to a record 27.5 million bpd. Opec had wanted to calm prices, but its move was seen by traders as a sign of the cartel’s concern about meeting demand next winter. “If prices continue as they are now, then starting from next week we will start our discussions,” said Sheikh Ahmad Al Fahad Al Sabah, energy minister of Kuwait and Opec president. Iran, however, was reluctant to consider another immediate quota rise. “We have to wait until at least mid-May before we know what the demand is going to be like going into the summer,” said Hossein Kazempour, Iran’s representative to Opec. World oil prices have climbed almost 50% in the past year and Opec now expects global demand to reach almost 86 million bpd in the fourth quarter, a figure that is roughly 3.5 million bpd above its estimate for the second quarter. A combination of strong demand and supply constraints means that oil prices are likely to remain high for the next two years, according to the International Monetary Fund (IMF). “We have to be aware that oil prices will likely stay high, although probably not at this level,” said Rodrigo Rato, managing director of the IMF. “In the next two years at least this will happen because of demand pressures — there is certainly very strong demand in the world for oil — and also because of certain supply constraints,” he added. Stricter environmental concerns, along with decades of low margins caused by overcapacity, have made major oil companies reluctant to invest in new refineries in the United States and Western Europe. Rato believes that consumers need to be aware of the real cost of oil, while governments need to diversify their sources of energy. “It’s clear that at this level of prices, even if they’re reduced a little bit in the medium term — governments of all consuming countries have to have a very clear energy policy, both in terms of demand and pricing,” explained Rato.

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