- The Washington Times - Sunday, September 18, 2005

VIENNA, Austria (AP) — OPEC should increase its output ceiling this week, even amid signs of slowing demand, to show the world that it is concerned about near-record oil prices, the cartel’s president said yesterday ahead of a key policy meeting.

Sheik Ahmad Fahd al-Ahmad al-Sabah, who is also Kuwait’s oil minister, said the Organization of Petroleum Exporting Countries may even need to act again before the end of the year as U.S. refineries hit by Hurricane Katrina recover and the Northern Hemisphere’s winter sets in.

“We think we need to send a message to everybody there will be extra oil in the market — we’ve accepted the idea — to stabilize the price,” Sheik al-Sabah said.

OPEC is poised to increase its output ceiling, currently 28 million barrels a day, by 500,000 barrels a day.

Oil Minister Ali Naimi of Saudi Arabia, the OPEC member with the best capacity to increase production, has said he supports an increase in the ceiling but that he did not see demand for more crude. He did not specify the size of any increase.

Sheik al-Sabah said the market now is oversupplied by 1.5 million barrels a day, and there are indications that demand for crude is slowing, but a further increase of the output ceiling may be needed as the high-demand winter season approaches and refining capacity knocked out by Katrina is restored.

“I think in November some refineries will come back in the South of the United States, and if the winter is cold, we have to do our best to increase real production,” he said.

He said OPEC had 1 million barrels a day in extra production, but would not say how much the possible quota increase later this year would be.

OPEC originally was expected to make its output decision today, but that has been delayed until tomorrow to accommodate a celebration of the 40 years since it moved its headquarters to Vienna, as well as ministerial talks on a new long-term strategy.

Previous OPEC increases have done little to ease market fears over supply, and any increase is widely regarded as meaningless because it merely sanctions existing production.

The ministers were in agreement that the market was well-supplied and pointed to a refining problem, rather than a lack of crude.

Venezuelan Oil Minister Rafael Ramirez said his country was not opposed to an increase in OPEC’s output ceiling, but said such a move largely would be symbolic.

“That would make no difference to the market,” he said.

Mr. Ramirez said, however, that refining capacity was “very big problem,” in part because of damage from Katrina.

Qatari Oil Minister Abdullah bin Hamad al-Attiyah said $60 a barrel was a high price for crude and that OPEC was not trying to protect it.

“I believe it’s a high price. It’s not our intention to protect $60; we’re not aiming for that,” Mr. al-Attiyah said. “If we were, we would have made another decision.”

Mr. al-Attiyah said the problems with U.S. refineries being off-line since Katrina hit were temporary, but the capacity “will take a few months to get back to full production.”

“The problem today is the shortage of products, not crude oil,” he said.

He said that although he doesn’t see any reason for increased production because there was no strong indications of higher demand, “I would support whatever we can do to stabilize the market. Our message is to make sure there’s no shortage of crude in the market.”

But he noted that a 500,000 barrels-a-day ceiling increase would provide little more than “psychological support.”

There appears to be increasing volumes of unsold heavy, sour crude that the U.S. doesn’t need, creating a dilemma for OPEC.

“The oil problem is clearly downstream — insufficient refinery capacity,” said Johannes Benigni, managing director of PVM Oil Associates of Vienna. “Already OPEC members find it difficult to find a market for their crude oil; they’re really struggling to place their barrels.”

Because of a surplus of crude and lack of refinery capacity, “we may expect a significant increase in U.S. commercial crude oil inventories, even if OPEC does nothing,” he said. “Refinery tightness is going to keep prices high.”

Prices soared above $70 a barrel after Hurricane Katrina slammed into the Gulf Coast, a major oil production hub. But there is concern that high prices have weakened demand. Prices hit their lowest levels in five weeks Friday, with light, sweet crude for October closing at $63 on the New York Mercantile Exchange, the lowest since Aug. 5.

Gasoline closed at $1.7851 a gallon, the lowest since Aug. 3.

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