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OPEC powerless as oil keeps climbing

OPEC powerless as oil keeps climbing
Wednesday September 21, 6:17 am ET
By Barbara Lewis and Ghaida Ghantous

VIENNA (Reuters) - OPEC ministers left Vienna on Wednesday powerless over oil prices that kept climbing despite the cartel's commitment to offer up every last barrel of its spare production to reassure consumers.

"We have done everything we can. This is the time for others to do what they can," Libya's Oil Minister Fathi Omar Bin Shatwan told Reuters ahead of his departure.

The deal, struck on Tuesday, means the 11-member Organization of the Petroleum Exporting Countries is putting its remaining two million barrels a day of crude on the block, with most of the extra oil held by top exporter Saudi Arabia.

The agreement has been welcomed by the European Union and Britain's finance minister Gordon Brown, among OPEC's harshest critics in the run-up to the meeting. But with oil edging further above $67 a barrel, OPEC's argument that gaps in the global refining network were to blame gained authority.

Hurricane Rita is accelerating toward the Gulf of Mexico and threatening U.S. refineries spared by Hurricane Katrina last month. The market fears a shortage of gasoline and heating fuel in the world's biggest consumer, the United States.

"We're giving the patient the wrong medicine. The patient does not need crude oil, the patient needs products. This is the problem," Shatwan said.

Saudi Oil Minister Ali al-Naimi said OPEC had done its utmost to satisfy the world's oil users. "I believe a reasonable consumer will appreciate very much what OPEC has done to go out of its way and to offer all the spare capacity it has, recognizing that maybe there is no demand but offering it so the consumer can feel comfortable that the supply is there."

Prices are likely to remain hostage to downstream supply disruptions because the world's refineries are too stretched to handle more crude. The last new U.S. refinery opened three decades ago.

A threat by Nigerian militants to target the OPEC member's oil output also worried markets. Nigeria's crude is among the best for making gasoline, and the United States is its biggest customer. Shatwan said instability in oil producing countries such as Nigeria, Iran and Iraq was "a worry."

FREEDOM TO PUMP MORE OIL

Tuesday's OPEC deal effectively suspends quotas until the end of the year although official quota limits stay unchanged at 28 million bpd. The deal applies from October 1 for 3 months.

Analysts at Barclays Capital said the deal was a first step in creating a framework for top exporter Saudi Arabia to raise its output levels independently, enabling a more flexible approach to future increases in output.

Energy industry analysts said that by offering everything in reserve even though it sees no more demand, OPEC had turned the tables on those consumer countries who blame it for high prices.

While oil prices stay high, little attention is being paid to the sort of level OPEC might seek to defend should crude markets start to fall. Ministers have been pleasantly surprised at how the world economy has managed to cope with high prices when little more than two years ago economists were fretting about oil over $30.


LINK: http://biz.yahoo.com/rb/050921/energy_opec.html?.v=2