Crude oil prices rose from a six-week low in New York after an OPEC pledge to pump at full strength would fail to raise output enough to meet demand in the event of another Gulf of Mexico hurricane.
OPEC President Sheikh Ahmad Fahd al-Sabah said yesterday the group, source of about 40 percent of the world's oil, may offer every barrel it can produce at a meeting today in Vienna. Tropical Storm Rita, near the Bahamas, is forecast to strengthen to a hurricane and head for the Gulf of Mexico, where Katrina slashed U.S. output by more than 25 percent last month.
“Talk is one thing but action is a little bit more, and OPEC can't open the taps too much further,” said Guy Bower, chief executive of Commodity Warrants Australia Pty, a Sydney- based company that sells over-the-counter commodity warrants. “The market is being bid up on worries that Rita will get to the Gulf and that it will be a hurricane when it does.”
Crude oil for October delivery rose as much as 78 cents, or 1.2 percent, to $63.78 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $63.70 at 1:02 p.m. in Singapore. Futures have declined 10 percent from an all- time high of $70.85 a barrel on Aug. 30, reports Bloomberg.
According to Reuters, ministers are discussing raising output by 500,000 or 1 million barrels a day. But a third option was gaining ground that would see production left unchanged with a vow to release spare capacity when the market can absorb it.
Some said they were reluctant to sanction additional crude when global refining is too stretched to process more.
“The market should rest assured that whatever it needs is there. Before that there is no need to do anything,” said Nigerian Oil Minister Edmund Daukoru.
With many U.S. refineries still shut after Katrina, the only producer able to pump more, Saudi Arabia, cannot find buyers.
“The talk of an increase is mainly to give comfort to the market,” said Daukoru. “It is refining capacity we have to worry about.”
Algerian Oil Minister Chakib Khelil disagreed: “No, we have to reassure the market, we have to do something,” he said.
OPEC does not appear too concerned yet about forecasts that cut demand growth projections for the rest of 2005 and 2006 due to high retail gasoline prices and a slowdown in Chinese growth.