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OPEC to keep output quotas at 11-year low as prices rise

Minister of Energy and Industry Abkullah bin Hamad Al Attiyah from Qatar, left, is surrounded by journalists prior to the start of a formal meeting of OPEC ministers in Osaka, Japan, yesterday. Countries in the Asia Pacific region are especially concerned about rising crude oil prices because most of them are net importers of petroleum products. PHOTO: AP

OPEC members agreed to leave their production quotas unchanged at 11-year lows, rejecting appeals by consumers in the US, Europe and Japan for more oil as winter approaches and prices gained 49 percent this year.

Crude oil is headed for its biggest annual gain since 1999, when it more than doubled as OPEC started a series of supply curbs. Venezuela and OPEC's top producer Saudi Arabia led the campaign to boost prices from an average US$12.05 a barrel in 1998, the lowest in more than a decade.

Greater quota compliance by OPEC and a revival in Asian demand helped New York oil to average more than US$25 a barrel since the beginning of 1999. Crude may be headed for US$30 or more as winter approaches in the US, Europe and North Asia, driving up prices for jet fuel, gasoline and heating oil, analysts said.

"We are heading into winter and we could get a war which could drive oil prices to US$40 in the first few days," said Gordon Kwan, an energy analyst at HSBC Research in Hong Kong. "That's the reason prices are sticking around US$30 -- nobody wants to be caught without oil if a war happens."

This year, the producer group's discipline has weakened, as some members exploited erratic exports by Iraq, the only member of OPEC without a quota because its shipments are under the control of the United Nations.

Crude traded at US$29.60 at 3:50pm Osaka time, even as OPEC President Rilwanu Lukman conceded that the group is producing about 1.8 million barrels a day more than its limit.

"What they're saying is they're just going to go with the status quo and continue to cheat," said Dennis Kongsiri, vice president of Mitsui & Co Energy Risk Management Ltd in Sydney.

OPEC benchmark price, based on seven grades of crude oil, has been within its target range of US$22-to-US$28 a barrel for six months. OPEC, which pumps about a third of the world's oil, will increase output if it breaches US$28 a barrel, Lukman said.

On Tuesday, the so-called basket price fell to US$26.92 from US$27.55 on Monday. In New York, crude oil for October delivery earlier rose as much as 18 cents, or 0.6 percent, to US$29.66 a barrel in after-hours electronic trading.

OPEC will meet again in December to reassess the market and review quotas, OPEC spokesman Abdulrahman al-Kheraigi said.
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