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Few Countries Can Increase Oil Production
By Matthew Robinson
NEW YORK (Reuters) - Major oil producing countries remain under pressure to increase output and prevent nine-year high crude oil prices from rising further, yet experts say only a few will be able to increase production substantially.
Oil prices have more than tripled since last March, when Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries engineered a one-year production restriction agreement which cut four million barrels per day (bpd) of oil from the 75 million bpd world market.
At the OPEC meeting scheduled for March 27 at the cartel's Vienna headquarters, the producers face the task of figuring out how to bring production back and by how much in order to balance their revenue needs with a healthy global economy.
At issue is the ability of producer nations to ramp up their crude oil output, analysts say.
Traditionally, OPEC has been divided between members which can easily increase volumes and counterbalance a lower price with higher production, with the others, who need a higher price to keep revenues steady since they are unable to increase volumes.
Within OPEC, the amount of overall spare production capacity -- the volume of oil that can be sustainably produced -- has fallen in the past two years due to disuse and lower investment. Some analysts speculate that this could affect bargaining positions within the cartel, giving countries that lack extra production capacity an especially conservative take on production increases.
MOST SPARE CAPACITY IN SAUDI ARABIA, KUWAIT AND MEXICO
``I think that you can say that virtually all of OPEC is producing at capacity at the moment,'' says Ed Morse, executive advisor for Hess Energy Trading Co. in New York.
``Effectively, another round of additions would come only from Saudi Arabia and Kuwait,'' Morse said.
In terms of spare crude oil production capacity, analysts estimate that Saudi Arabia holds nearly 50 percent of the 5 million bpd available, followed by Kuwait, which has around 15 percent.
Outside of OPEC, Mexico looks to be the only major country with significant volume of spare capacity. Currently producing around 2.9 million bpd, the country could ramp up to 3.3 million bpd, which could increase further as expansion projects come online later in the year.
After that, analysts say, there isn't much.
VENEZUELA, IRAN KEY TO NEW AGREEMENT
Analysts say getting Venezuela and Iran to comply with agreements is seen as key to keeping the agreements together, and their agreement to loosen output restraints is viewed as just as important.
``The two together (Venezuela and Iran) are the most significant given that they are key OPEC players.'' says Mike Whitner, upstream analyst for the International Energy Agency.
``PDVSA (state oil company Petroleos de Venezuela) simply has not spent the money over the past two years on drilling and exploration, with the funds moving to the general economy (of Venezuela),'' said Larry Goldstein, president of the Petroleum Industry Research Foundation (PIRINC), of OPEC heavy-weight Venezuela's state-owned oil company.
``This could make them price hawks (at producer meetings),'' Goldstein said.
Estimates currently put Venezuelan capacity at anywhere from 2.8 million barrels per day, the level at which most agree that they are producing now, to around 3 million bpd. In 1998, when producer cuts were first initiated, independent surveyors put the countries capacity at around 3.5 million bpd.
``I think that it's fair to argue that (Iran's) capacity is lower than what they were producing a year ago. A year ago, before the production cutbacks, they were over 3.6 million bpd, claiming 3.7 million bpd at points. Their capacity can't be 3.6 million (any more),'' says HETCO's Morse.
Nigeria, which analysts say could produce up to 2.3 million bpd from around 1.95 million bpd now, faces both operational and political problems which could realistically cap output at 2 million bpd.
Other OPEC producers such as Qatar, the United Arab Emirates, Libya, Algerian and Indonesia cut back less volumes and have less upward potential for increases.
Iraq production, which is not subject to the agreements, is shrouded by political uncertainty as world markets wait to see if the country will respect its self-imposed sales restrictions under the United Nations ``oil-for-food'' program. Iraqi officials have said that capacity has fallen by 300,000 bpd to about 2.5 million bpd currently.
WILL IT BE ENOUGH?
Any formal producer announcement seems to be precluded by informal rises by producers recently observed in the market. Analysts say that by the time major producers do finally let the world know how much the plan to increase production by, much of the rise will be in place.
Sources close to the oil policy of Venezuela, one of the key architects of the production cuts, said Thursday that producers are considering raising output by between 1 million barrels per day (bpd) to 2 million bpd above the restricted quotas.
A Reuters survey of OPEC producers excluding Iraq estimates January compliance with producer agreements at 73 percent, but analysts say there has been more cheating in February.
Many market watchers are already figuring in a rise beginning in April, and believe that with the approach of driving season in the United States, the volumes talked by OPEC now will not be enough to bring gasoline stocks to a comfortable level and relieve the market.
``An increase is in many ways going to be an optical illusion (due to the current rise in production),'' says Morse, adding ``The market is going to be tight even if the March 99 cutbacks are entirely eliminated.''
-- Cave Man (firstname.lastname@example.org), June 13, 2000
Jun 13, 2000 - 11:57 AM
Oil Prices Surge on Doubts OPEC Will Boost Production The Associated Press
LONDON (AP) - Oil prices surged to three-month highs on world oil markets Tuesday on doubts that OPEC will raise production at a meeting next week.
Light, sweet crude for July delivery jumped 86 cents Tuesday morning on the New York Mercantile Exchange to $32.60 a barrel. The last time crude was higher on the Nymex was March 8. On the International Petroleum Exchange in London, Brent crude oil for July delivery climbed 39 cents to $31.60 a barrel in afternoon trading, also a three-month high.
Higher prices were spurred by the belief that OPEC will not increase production levels at its June 21 meeting, analysts said.
That sentiment was underlined Tuesday morning by Iran's oil minister, Bijan Namdar Zangeneh, who reiterated that his nation opposed a production increase, according to Tehran radio.
The Organization of the Petroleum Exporting Countries had been expected to increase supply by 500,000 barrels a day last week - as ministers agreed at their last meeting if the average 20-day price of OPEC oil topped $28 a barrel. OPEC said Tuesday that its benchmark, based on a combination of prices, rose to $28.23 a barrel in the week of June 8 from $22.22 the previous week.
Iran did not sign that agreement, but did boost production to preserve its market share. It remains opposed to higher production.
"It is not really necessary to increase production until the price-band mechanism is evaluated," Zangeneh said. "Any increase in (OPEC) production will intensify stockpiling, and that will jeopardize oil prices and oil market conditions in the future."
Casting further doubt on a production hike, Venezuelan President Hugo Chavez said Monday that current oil prices are "fair and just."
"We should maintain prices around this level of $28 a barrel," Chavez told reporters in Caracas.
OPEC President Ali Rodriguez, who also is Venezuela's oil minister, said Tuesday in Caracas that any decision on production levels would be made at the June 21 meeting in Vienna, Austria. Rodriguez said he expects oil markets to cool down after that meeting.
Indonesia's energy minister, Soesilo Bambang Yudhoyono, said Tuesday in Jakarta that there is no need to rush to raise production.
In comments to reporters, Yudhoyono said the Secretary General of the Organization of Petroleum Exporting Countries, Rilwanu Lukman, had informed him that prices haven't yet been high enough for long enough to merit a production hike.
"Because of that, Indonesia is not in a hurry to change the output," he added.
-- Cave Man (email@example.com), June 13, 2000.
It doesn't matter if they can increase production or not. You see, oil prices MUST go down because the FUTURES ARE INVERTED!
-- J (Y2J@home.comm), June 13, 2000.
It looks like oil prices are going to go through the roof. -------------------------------------------------------------
Subject: [ENERGY] Email from Colin Campbell Posted By: SureMHopeful (Global user) Posted At: 6/13/00 1:48:37 pm From IP: Just received this email from noted oil expert Colin Campbell and wanted to repost it here.
"The short answer is that they are already running flat out and physically cannot increase production."
-- Cave Man (firstname.lastname@example.org), June 13, 2000.