OPEC may pump 2 million extra barrels of oil a day

Edith Balazs

Monday, Sept. 19, 2005 | 10:17 a.m.

VIENNA, Austria -- OPEC oil ministers trying to calm a market rattled by refinery shutdowns and concerned about supplies for the winter were debating today whether to boost the group's official output ceiling or make available 2 million extra barrels a day from reserves.

OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, said the group was considering boosting its current output ceiling of 28 million barrels a day by 500,000 barrels, or alternatively, offer the additional 2 million barrels to test demand for crude and cool near record-high prices.

"I hope the 2 million barrel option will be approved," said Sheik Ahmed. He said a decision could come later Monday.

Libyan Oil Minister Fathi Hamed bin Shatwan said OPEC was likely to test the market first.

"We'll say there is 2 million barrels a day available here," he said. "Who will buy it is welcome; to test the market and to show that there is no need (for an output hike). We say the market is well supplied and people don't believe us."

Shatwan said some ministers felt there was no need to alter the current quotas.

The OPEC president "will agree to this," he said. "We're facing a problem in showing the international market that we're prepared to help."

But increasing output would be purely symbolic, since industry analysts say OPEC is already pumping about 28.5 million barrels a day.

A ceiling hike "has no meaning now. A lot of us are at full capacity and we couldn't do anything extra," Shatwan added.

The extra 2 million barrels would come from the reserves of OPEC members, although Saudi Arabia is the only country able to provide significant extra crude. Kuwait and the United Arab Emirates also could contribute.

Algerian Oil Minister Chakib Khelil said the 2 million barrel offer was an attempt at stabilizing the market.

"That's the signal we're going to give. This one has the merit of proposing something concrete, offering to put on the market quantities which will help stabilize (the price), which we need," Khelil said.

Initially, most ministers appeared to support a 500,000-barrel-a-day ceiling increase, although they maintained that the market is well supplied with crude and the problem lies with refining products.

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

"The initial question is where is the 2 million barrels are going to come from," said Paul Horsnell, head of energy research at Barclays Capital in London.

"If this comes from Naimi's mouth, it has credit, but when you have smaller countries floating this, I would put a big question mark on it," he said.

Prices soared after Hurricane Katrina slammed into the U.S. Gulf Coast, a major oil production hub. The storm has been blamed for the evacuation of more than 700 offshore platforms and rigs. Several Gulf Coast refineries have shut down or reduced operations.

Light, sweet crude for October delivery on the New York Mercantile Exchange gained $1.07 to $64.07 a barrel by afternoon in Europe, still more than $6 off its all-time intraday price of $70.85 on Aug. 30. Gasoline rose more than 6 cents to $1.8455 a gallon amid concerns that a new tropical storm gaining strength off the Bahamas could eventually disrupt oil production in the Gulf of Mexico.

On Sunday, Sheik Ahmed said OPEC 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.

"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.

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.

Besides concern about production outages after Katrina, prices were also driven higher by worries about instability in Iraq and the upcoming winter. But OPEC also risks sharper price declines, as high prices seem to have taken a toll on demand.