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OPEC Agrees To Boost Daily Output

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AP
Seeking to cool volatile markets, OPEC ministers on Wednesday agreed to pump an extra half-million barrels of oil a day beginning April 1 and held out prospects of another production boost later if needed.

The move appeared in line with a proposal by OPEC's president, Kuwaiti Oil Minister Sheik Ahmed Fahd Al Ahmed Al Sabah. He suggested Tuesday that OPEC agree to a rise in output of 500,000 barrels a day and follow it some time in the future, if necessary, with another hike of the same amount.

The decision was confirmed by Libyan oil minister Fathi bin Shatwan. Crude oil prices dropped slightly after the announcement.

A report by the American Automobile Association says the price of regular unleaded gas is near an all-time high in the United States. The group reports a gallon of gas costs on average $2.05, right below the high set last May.

Experts said the effects of a ceiling increase would be minimal.

"It will not drive the price down but stabilize it and keep it from zooming into the stratosphere," said Anthony Sabino, a professor at St. Johns University's Peter J. Tobin Business School in New York.

The decision to boost output will officially raise the group's ceiling to 27.5 million barrels a day, tying an output record.

But with Iraq — which is exempt from quotas while it rebuilds — and quota-busting factored in, OPEC is already producing close to 29.5 million barrels a day.

With OPEC feeling the need to build worldwide stocks ahead of next winter, its decision Wednesday showed it was apparently ready to accept temporary oversupply — and dropping prices — to be able to deal with any anticipated winter crunch.

Edmund Dakouru, Nigeria's presidential adviser on oil matters, said "the extra oil will go a long way" toward meeting any concerns about winter supply.

At a time of stubbornly high prices, decisions to raise OPEC output are meant to tell markets that supply is available to meet demand. It is a message that has previously cooled buying frenzies.

But an increase now raises questions about the next OPEC meeting. Most forecasts predict even greater world demand in the future.

Estimates vary but most surveys put OPEC's spare capacity between 1 million to 1.5 million a day. Most of it is Saudi oil, which needs more refining than the preferred "sweet" crude produced by some other OPEC members. Oil production by states outside OPEC is stagnating.

With western economies generally expanding, demand soon could outstrip supply. The economic boom in China is already sucking up more than a third of the world's crude supplies. India's hunger for oil is also on the rise. At some point — no one has come up with a firm figure — the market would price oil so high that economies would begin to contract and demand would fall.

"We have to face facts. The International Energy Agency has raised demand estimates to 84.3 million barrels per day and that exactly equals worldwide daily consumption," said analyst Phil Flynn in a newsletter Tuesday. "We're at total equilibrium."

"OPEC has reached its production limits," Algerian Oil Minister Chakib Khelil said over the weekend. "If it came to a crunch, it has capacity for 1 million barrels."

After weeks of prices above $50 a barrel, Washington is calling on producers to take steps to lower the price. The White House complained Tuesday that rising energy costs were a drag on the U.S. economy.

White House press secretary Scott McClellan said the administration was telling oil producers "about the importance of acting in ways that support our growing global economy and our growing U.S. economy."