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Thu, Sep 13, 2007 - Page 10 News List

Oil cartel agrees to small output hike

DWINDLING STOCK Despite OPEC's decision to raise output, analysts said that prices would remain under pressure with the approach of peak winter demand


World oil prices traded flat near all-time highs of above US$78 yesterday after the OPEC cartel agreed to what traders called a token output hike.

At 1355GMT, New York's main futures contract -- light sweet crude for delivery next month -- was US$0.43 higher at US$78.27 a barrel from a record US$78.66 per barrel in late US trades on Tuesday.

That price was close to the all-time intraday high of US$78.77 hit on Aug. 1.

Brent North Sea crude for delivery next month was US$0.36 lower at US$76.74 a barrel.

OPEC's decision on Tuesday to pump an extra 500,000 barrels per day from the start of November was intended to signal the cartel's willingness to respond to supply fears in consumer countries.

But analysts forecast that oil inventories will continue to drop in rich countries during winter months in the northern hemisphere -- the peak period for demand -- applying upward pressure on prices.

"I think it's a drop in the ocean," Steve Kelbrick, CEO of Swiss-based South Energy Consulting SARL, said at a petroleum conference in Singapore.

"I don't think there will be much effect upon the price. I think the price movement is inexorable," he said.

Geopolitical risks, a lack of global refining capacity and fear of hurricane damage to Atlantic oil installations have also been driving crude prices higher.

Analyst David Kirsch from Washington-based consultancy PFC Energy said the OPEC decision "will take some of the near-term supply concerns off, but shouldn't put too much downward pressure on markets."

Mike Fitzpatrick, at MF Global, said during US trading hours the market viewed OPEC's move as only a token gesture.

"We have very strong demand. Supply is dwindling until the year-end while demand will go even higher and [pressures are rising from] continued geopolitical unrest," he said.

Saudi Arabia appeared to have forced through the increase in the face of stiff opposition from the majority of its OPEC partners, notably price hawks Iran and Venezuela.

Some OPEC ministers had talked of their unease at increasing production when the outlook for global economic growth -- which determines future demand for oil -- was uncertain.

Kelbrick said that the only thing that would slow oil's upward movement is an "economic cold" in major consumers like China or the US.

"And that's why everyone's talking about subprime at the moment because it could be the germ that creates the cold," he said, referring to mounting home foreclosures which triggered a wave of losses in the US "subprime" mortgage sector.

The 10 OPEC members that are bound by production limits have raised their daily output target by 1.4 million barrels to 27.2 million barrels -- from its current level of 25.8 million, ministers said.

This represents a real increase of 500,000 barrels per day from current levels because OPEC was already producing 900,000 barrels more than its daily output target, ministers said.

Countries belonging to the cartel produce about a third of global oil supplies.

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