Oil prices keep rising as OPEC frets about Russia

Oil surged to a two-month peak Friday on a combination of fund buying and concerns about heating fuel supplies ahead of a looming northern hemisphere winter.

New York's benchmark light sweet crude November contract gained US$0.96 to US$31.97 per barrel in afternoon trade.

The price of reference Brent North Sea crude oil for November delivery rose US$0.76 to US$30.90 per barrel in late deals.

OPEC's to slash oil output starting in November will keep crude prices high this autumn, but burgeoning exports from Iraq and Russia could force the producer group to cut deeper when demand ebbs next spring, the International Energy Agency said Friday.

The desire of some OPEC members to increase their production quotas will add to pressure on the Organization of Petroleum Exporting Countries in the second quarter of next year, when oil consumption hits a seasonal low.

Firm prices will encourage Russia and other independent producers to pump more oil to maximize their revenues. To avoid a supply glut, OPEC will have to pump less, giving up some its market share for the fifth consecutive year, the IEA said.

If OPEC refuses to reduce its output in the face of falling demand, prices will sink beneath the weight of surplus crude.

"Difficult decisions lie ahead," the IEA said in its monthly oil market report. The IEA, headquartered in Paris, is the energy watchdog for the world's biggest oil-importing countries.

The agency noted that average crude prices fell sharply in September, but as usual it avoided forecasting prices.

November contracts of US light, sweet crude were trading Friday at US$31.93 a barrel on the New York Mercantile Exchange. Adam Sieminski, an oil price strategist at Deutsche Bank in London, said he expected US prices would fall to an average of US$24.00 during next year's second quarter.

Such a decrease "seems like a lot," but the confluence of factors described in the IEA's report suggest that lower prices might be inevitable, Sieminski said.

OPEC, for now, is "on a roll," the agency said. With its pre-emptive decision on Sept. 24 to cut its production target by 900,000 barrels a day, the group aimed to show its resolve to do whatever it takes to support prices.

But OPEC's comfort is only temporary, the IEA said.

Iraq's production is recovering more quickly than many analysts had expected. Iraq pumped an additional 380,000 barrels a day in September, whereas OPEC, which includes Iraq among its 11 members, boosted its overall production by just 90,000 barrels a day, the IEA said.

Lower from Saudi Arabia and the United Arab Emirates offset some of the Iraqi increase, and OPEC averaged 26.66 million barrels a day for the month. World oil output overall edged upward by 300,000 barrels a day to 80.11 million barrels.

Independent led by Russia, Norway and Kazakhstan continued to surge ahead, adding 135,000 barrels a day last month, the IEA said. Non-OPEC production has risen by 2.2 million barrels a day since September last year, and OPEC worries that this trend might upset the global balance of supply and demand.

After OPEC agreed to cut production starting Nov. 1, some of its members hinted that they wouldn't do so again unless independent producers shouldered some of the burden by making cuts of their own. Russia -- the largest crude supplier outside OPEC -- is the group's main cause for concern as it anticipates a decline in postwinter demand.

"They've got to get help from Russia if they really want to contain this. Russia's production is increasing more rapidly than anybody else's and will continue to increase," said John Waterlow, an oil analyst at Wood Mackenzie Consultants in Edinburgh.

Russia reluctantly in December 2001 to cut its production in cooperation with OPEC, but it has played down expectations that it might do so again.

OPEC Abdullah bin Hamad al-Attiyah told reporters in Tokyo on Friday that Russia had given the group "very strong commitments" to cooperate and that the Russians were "absolutely" not interested in seeing prices fall.

Yet later in the day, Russia's Energy Minister Igor Yusufov told a news conference in Moscow that OPEC's price target was too high.

"We don't want to go over US$25 a barrel because it hurts consumers, while OPEC believes that US$28 a barrel -- even US$30 a barrel -- is acceptable," Yusufov said.

Waterlow, the analyst, said that Russian support for OPEC "is unlikely to be any more than cosmetic, if it happens at all."

At the same time, pressure is growing within OPEC, as Algeria, Libya and Nigeria each press for a larger output quota. Any increase in individual quotas would make it harder for OPEC to trim its aggregate production, the IEA said.