Opec move unlikely to affect oil price

from the Financial Times...

Opec's latest unsuccessful attempt to cool soaring oil prices has given speculators few excuses to sell crude futures. The oil cartel has been trying to talk prices down for two weeks before Thursday's Beirut meeting. Comments about a temporary suspension of output quotas heightened expectations that something big was in the offing to show it was serious about bringing crude futures prices down from their record levels. However, some ministers admitted the decision to increase production quotas by an amount less than the market was expecting would have little impact on dragging prices down. "I don't expect any effect on prices with this agreement," Rafael Ramirez, the Venezuelan energy minister, told reporters. Jamal Qureshi, energy analyst at PFC Energy, said the Opec decision followed a pattern whereby the oil cartel builds up expectations that it is going to produce more but then fails to deliver. "It shows that their strategy of trying to manage inventories by keeping a tight rein on supply hasn't changed. This does not give the funds any reason to short the market," Mr Qureshi said from the sidelines of the Beirut meeting. If prices remain near record levels when the group next gathers in Vienna next month, Opec will be in a position to put a bit more than the promised 500,000 barrel increase on the table as it still has some capacity of about 1.5m barrels a day. The agreement on a staggered quota increase underlines the split within Opec. While ministers agree that much of the high oil price is due to concerns about security of oil supplies, the tight gasoline situation in the US and speculative activity, their outlook on demand sustainability differs. Iran, Opec's second largest producer with about 4m b/d, suggested a 1.5m b/d quota increase and its resistance to a straight 2.5m b/d increase was one of the main reasons for the decision to increase the quotas in two stages. Opec officials said Iran was doubtful that demand would continue to grow at the current level, saying that the current projected increase for this year of 2m b/d which is the highest rate in 16 years, could not be sustained. Iran believes that if Opec ramps up production on expectations that current market growth will continue it will lead to a glut of oil. This view is met with some sympathy by other Opec members, which remember the price hitting $10 in 1998 shortly after the oil cartel increased production by one of its highest rates in anticipation of continuing strong demand from the Asian tiger economies. Saudi Arabia is more optimistic about the outlook, but feels that demand is adequately met, and there will need to be more calls from customers before it will lift output from the 9.1m b/d projected for June. The decision also reflects the horse-trading that takes place among Opec members with Algeria and Nigeria wanting higher quota allowances as they have consistently produced over their quotas, while Indonesia and Venezuela have struggled to match theirs.