Opec agrees higher output levels
June 15, 2005
Opec members meeting in Vienna have agreed to lift the cartel's daily output limits by 500,000 barrels to 28 million barrels a day.
Oil prices carried on rising as traders believe the widely-anticipated move by Opec to raise production quotas will do little to cool the market.
Shortly afterwards, US light, sweet crude was at $55.64, up 64 cents during the day, and Brent crude was at $54.30.
Opec delegates said a further 500,000 barrel increase was possible in future.
Underinvestment
Opec members are already supplying more than 28 million barrels per day so the increase in formal production quotas ratifies the status quo.
Opec members gave the cartel's president the authority to consider another 500,000 quota increase in a few months, but they say there is not much slack in the supply chain.
"We've assessed the market and concluded that there is plentiful supply and the problem is with refining," said Saudi Oil Minister Ali al-Naimi, speaking after the quota increase.
Earlier, he urged oil-consuming nations to "build, build refineries".
Saudi Arabia is the only Opec member with sufficient surplus production capacity to make up the quota increases.
Analysts agree there is little chance of significant increases in output, believing prices are likely to remain at their current levels, supported by restrictions on access to existing oil reserves and limitations on new capacity.
"The real problem is a lack of refining capacity," Geoff Curry, head of commodity research at Goldman Sachs, told the BBC. "Capacity is very limited outside of Saudi Arabia right now."
Mr Curry said the industry was paying the price for a lack of investment in new capacity in recent years.
"Over the course of the next ten years we have to see this investment take place and high prices will be required to attract this investment."
Opec's president, Sheikh Ahmad al-Fahd al-Sabah of Kuwait said before the meeting that any increase in quotas agreed on Wednesday would merely be "symbolic".
However, Sheikh Ahmad said that Opec was obliged to act when oil prices climb above $50 a barrel and "do everything we can to make more reasonable prices".
Pipeline problems
Oil prices have not been helped by supply blockages that remain a real issue in some countries.
Iraq, troubled by security problems and a lack of investment, said this week it might not return to pre-war levels of output until 2007.
It currently produces 1.7 million barrels of oil a day - 1.4 million for export - compared with three million barrels a day before the US-led invasion.
Russia, the largest oil-exporting nation outside Opec, has seen production growth slow after it seized the main oil arm of Yukos and brought it under state control.
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