OPEC deal fails to dent high oil price

JUNE 22: Oil prices stayed strong on Thursday as dealers decided a new OPEC deal raising supply by just three per cent would do little in ...

JUNE 22: Oil prices stayed strong on Thursday as dealers decided a new OPEC deal raising supply by just three per cent would do little in the short-term to reduce high petroleum import costs in the West. London Brent crude futures traded up 27 cents at $ 29.60 a barrel and US light crude was 13 cents higher at $ 31.50.

Oil analysts said OPEC’s cautious output hike, agreed on Wednesday, was unlikely to rein in prices to the $25 level the cartel says it is targeting. "The market will remain tight and under these circumstances it is highly improbable that prices will retreat back to the mid $20s," said John Toalster, director of oil and gas research at SG Securities.

Energy shares, benefiting from the resilient oil price, were top gainers on European bourses. BP Amoco hit a new record at 653 pence. Less than 24 hours after the Organisation of Petroleum Exporting Countries sealed the deal, officials were talking of the possibility of needing additional barrels later this year.

"It’s quite possible we will put more oil on the market if prices stay high for a month or so," OPEC Secretary-General Rilwanu Lukman told reporters. "There is an agreement that if prices go too high for our liking we will do something. Prices appear to be on the high side at the moment," Lukman said.

OPEC’s output hike, the second this year, raises output by 708,000 barrels a day to 25.4 million bpd from July 1. Non-OPEC Mexico, which cooperates with OPEC on output policy, announced a 75,000 bpd rise in exports. Norway is expected to increase output by up to 100,000 bpd.

Both countries supported OPEC in implementing production curbs in 1998-1999 to lift oil from less than $10. Producers began to ease the production restrictions in April after prices surged to highs not seen since the 1990-1991 Gulf crisis.

The latest increase represents less than one per cent of world consumption and with fuel stockpiles in the West running low, analysts said that OPEC’s latest actions will have little direct impact.

Story continues below this ad

Leakage from current quotas means that net additional OPEC oil to be released to the market will be only be about 400,000 to 500,000 bpd. "OPEC is being very cautious and there will be insufficient oil. They will need to increase output again in September," Toalster said.

OPEC heavyweight Saudi Arabia, the world’s biggest producer, said the cartel would defend a target of $25 per barrel for its reference basket of seven crudes. That basket stood at $29.14 on Wednesday, according OPEC’s Vienna headquarters. "We have a $25 target price, we will try to keep it there,we will do whatever needs to be done, we will watch it like a hawk," Saudi Oil Minister Ali al-Naimi told reporters.

He reiterated the view that the relentless price rally was a result of a tight refined products market rather than a shortfall in crude supply. Naimi is due to hold talks with Norwegian Oil Minister Olav Akselsen on Friday in Oslo. A 13-day strike threatens to close Norway’s 3.2 million bpd of crude output and gas production from midnight (2200 GMT) on Friday.

Oil companies have threatened to lock out Norwegian offshore oil and gas workers from two main unions because of the dispute over retirement age. So far the strike has closed the 225,000 bpd Draugenoilfield and the 60,000 bpd Ekofisk Bravo installation.