Oil prices to remain high - OPEC mulls an increase in production, but analysts say it�s mostly symbolic
By WILLIAM J. KOLE
The Associated Press
VIENNA, Austria — Oil prices will remain high well into 2006 even if the Organization of Petroleum Exporting Countries decides to raise its production ceiling this week, experts said Monday.
OPEC, which churns out 40 percent of the world’s daily production, is expected to approve a 500,000 barrel-a-day increase in output to make its official quota 28 million barrels a day when it meets Wednesday.
But the cartel already pumps roughly 30 million barrels every day, meaning the move would be largely symbolic and unlikely to bring down high prices.
Finance ministers from the Group of Eight industrialized nations called over the weekend for greater investment in increased energy efficiency and alternative sources of energy. Sustained high energy prices "are of significant concern since they hamper global economic growth," they said.
Crude oil prices have been hovering around $53 a barrel, and experts see little prospect of relief soon for consumers beset by high prices at the gas pump. Prices have more than doubled from 2½ years ago.
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"A lower oil price is in OPEC’s interest, but the group’s power over oil prices is diminished because of the scarcity of excess capacity," said Robert Plexman, an analyst with Canada-based CIBC World Markets Corp.
Victor Shum of Texas-based energy consultants Purvin & Gertz in Singapore also doesn’t expect any effect on prices if OPEC approves the higher ceiling.
"Even if they raise the output target, it’s only legitimizing some of the overproduction," Shum said. "The fundamental factor for rising prices is the limited spare crude oil production capacity in OPEC."
Saudi Arabia is the only country in OPEC thought to have the ability to add any barrels to daily production, and its oil minister, Ali Naimi, said Saturday it already is producing all it can sell.
"If you look at spare capacities, it implies that OPEC does not have much room to maneuver," Orrin Middleton, an analyst with Barclays Capital in London, said. "I don’t think they have much up their sleeve to influence prices at this point."
Middleton said he expected prices to have another run near $60 a barrel in the third quarter.
Jochen Hitzfeld, an economist with Germany’s HVB Group, also foresees prices rising further. "Prices will remain high in 2005 and will continue to rise in 2006," he said.
In a report Friday, the International Energy Agency left its estimate for 2005 world oil demand unchanged at 84.3 million barrels a day. It said OPEC’s output fell by 55,000 barrels a day in May to 29.3 million barrels.
Hitzfeld and others caution that the so-called "global depletion midpoint" — the point at which roughly half of oil reserves have been tapped and production can no longer be increased — could come by the end of the decade.
"Petroleum production in many important producing countries, such as the United States, the United Kingdom and Norway, has already passed the depletion midpoint," he said, adding that the quality of crude also is deteriorating, which causes higher costs and bottlenecks in refining.
"For that reason, we see no relief for the oil market even in the longer term," Hitzfeld warned.