OPEC Appears Unlikely to Increase Its Oil Export Quotas

Fifteen months ago, key members of the Organization of the Petroleum Exporting Countries said that the steep price of oil, about $70 a barrel, was a concern because it might endanger global economic growth -- and stifle global demand for oil.

With OPEC set to meet on Tuesday, however, that price level has become the norm, and the world economy has chugged ahead anyway. As a result, even though petroleum prices are flirting with record highs, the 12-member group that produces about 40 percent of world oil supplies will make no move to boost output next week, oil analysts say.

If anything, OPEC is worried that the global growth could falter as a result of the current crisis in credit markets. If that's the case, then a boost in OPEC oil production could lead to a surplus and a dip in oil prices that the cartel would find unwelcome.

OPEC President Mohamed al-Hamli, who is also the United Arab Emirates' oil minister, said in an interview with Reuters on Thursday that the oil market "is very well balanced." He added, "There is no shortage whatsoever of oil supplies." Oil ministers for Algeria, Iran, Libya, Qatar and Venezuela have also said in recent days that they support keeping the current production quota until December.

But OPEC's balance is a pricey one. Crude prices in New York for October delivery rose yesterday to $76.70 a barrel, up 14 percent from a year earlier.

"They are not going to do anything," said Adam E. Sieminski, chief energy economist of Deutsche Bank. "What OPEC is saying is: 'When it looks like $75 oil is going to kill the economy, then we'll do something.' "

"There is no reason to add supply when they don't know what the market is doing," said Roget Diwan, an international oil expert at PFC Energy, a Washington consulting firm, describing OPEC's view.

In the meantime, OPEC is content to let world oil stockpiles gradually decline. From record levels a year ago when the cartel curbed production, commercial oil inventories held by OPEC member countries have slid to about 50 days' supply, just under the five-year average for normal storage levels at this time of year.

Diwan estimates that world oil inventories are dropping at a rate of 300,000 barrels a day. Lehman Brothers estimates that the drawdown could be as much as 1.8 million barrels a day in the most recent quarter.

That's led to some grumbling at the International Energy Agency, which includes 26 of the world's biggest oil-consuming countries. The IEA's new executive director, Nobuo Tanaka, told reporters in Paris this week that the market situation "is tightening" and that "the current level of spare capacity is very low."

The outgoing IEA head also said he was worried about the OPEC consensus on prices and output. "I fear that OPEC has set implicitly a new target price of about $70 a barrel," Claude Mandil said in an interview with Bloomberg News. "I deplore this because it weighs on the global economy and it's a burden for the poorest people." A year ago, the most militant OPEC members were talking about trying to establish a new price floor of $50 to $55 a barrel.

Though the OPEC meeting is taking place on the anniversary of the 2001 terrorist attacks in the United States, oil experts say that OPEC views the oil market as being closer to the fall of 1997 than the fall of 2001. In 2001, OPEC boosted output to calm international markets and prop up the world economy in the wake of the attacks. But in 1997, OPEC boosted output during the Asian financial crisis, and oil demand -- and prices -- plunged.

"It is no wonder, then, that OPEC governments are now reluctant to add output when they see risks to global economic growth," said a report issued yesterday by Lehman Brothers. "OPEC is reminded of its inability to stop a downward price spiral, which the group experienced in 1997-98, when earnings fell collectively from just under $200 billion to just over $100 billion." This year, OPEC countries could make more than $500 billion in oil revenues.

Analysts note that because of the weakness of the dollar, the price of oil -- which is priced in dollars -- hasn't increased as much in other currencies. In euros, the price of oil is up 12 percent over the past two years. In U.S. dollars, it is up about 20 percent.

But worldwide demand has been rising despite the price increases. The Energy Department's Energy Information Administration said in its last forecast that global oil consumption was up a modest 700,000 barrels a day, less than 1 percent, in the first half of the year. But it said it expected consumption to rise 1.8 million barrels a day, or about 2 percent, in the second half of the year. Most of the increase comes from China, the United States and the Middle East, the EIA said.

OPEC currently produces about 30.4 million barrels a day of crude oil out of a world total of about 85 million barrels a day. The production is modestly higher than its current targets.

Saudi Arabia is the only OPEC member with substantial excess capacity. It could increase production by nearly 2 million barrels a day, Diwan estimates. Kuwait and the UAE could each boost production by 200,000 to 300,000 barrels a day.