Crude oil prices approached record highs yesterday despite an OPEC decision to increase production limits in an effort to dampen prices.
Oil ministers of the Organization of Petroleum Exporting Countries meeting in Vienna boosted their daily production ceiling by 500,000 barrels, to 28 million barrels, effective next month. The cartel authorized its president to approve another increase of 500,000 barrels a day before its next meeting in September if prices remain high.
OPEC's decision was largely symbolic because oil analysts said the cartel already is producing slightly above its new production quota. "The market is not accepting that they can produce enough, that they have the spare capacity to lower prices," said John P. Kilduff, senior vice president of energy risk management for Fimat USA Inc. in New York.
Prices rose yesterday after the release of weekly Energy Department data showing that U.S. stockpiles of crude oil and gasoline decreased, adding to fears of a tight market. While analysts said inventories remain high, they expressed concern about whether supply would be able to keep up with demand later in the year.
U.S. benchmark crude for July delivery spiked on the New York Mercantile Exchange to more than $56 a barrel before closing at $55.57, up 57 cents from the day before. Unadjusted for inflation, oil prices closed at a record high in April of $57.27 a barrel. Prices then fell into the high $40s and have been creeping up in recent weeks.
Rising oil prices soon will ripple through to the price of gasoline at the pump, analysts said. "I would expect to see prices increase through June and maybe into July," said Doug MacIntyre, an oil analyst with the Energy Department's Energy Information Administration.
A gallon of regular gasoline yesterday averaged about $2.13 nationally, below the April high of nearly $2.28 a gallon, according to a survey by AAA.
Crude oil has been edging higher because of concerns that supplies could be inadequate to meet surging demand, analysts said.
China, India and other countries have been demanding more oil. Suppliers have been struggling to keep up, and oil traders have worried that producers are bumping up against their production limits.
OPEC officials said that limited refining capacity also is propping up oil prices. The cartel's president, Sheikh Ahmad Fahd al-Ahmad al-Sabah of Kuwait, said during a news conference after the meeting that the market is well supplied with crude oil and that a shortage of refining capacity is a problem.
In remarks carried on OPEC's Web site, he said that the cartel has been doing its part by boosting production but that foreign governments and companies need to build new refineries.
"We are hearing a lot from the White House asking us to increase our production," al-Sabah said. "Now we are increasing our production."
Analysts said Saudi Arabia is the only OPEC member with the ability to pump any significant quantity of additional oil. But the kingdom has repeatedly said its customers have not asked for it. Much of the additional capacity is in heavier grades of oil for which there is little additional refining capacity, analysts said.
OPEC's decision -- and the market's reaction -- mirrored the cartel's announcement in March that it would boost production limits by 500,000 barrels per day with the possibility of a second increase if prices remained high.
The production ceilings apply to all OPEC countries except Iraq.