ESFAHAN (IRAN), 16 Mar. (IPS) The Organisation of Petroleum Exporting Countries (OPEC) decided Wednesday to increase its production ceiling by 500,000 barrels per day (BPD) to 27.700 million BPD “effective immediately", the cartel’s president Sheikh Fahad Ahmad al Ahmad al Sabah of Kuwait announced.
“The primary aim of the Esfahan meeting was to boost oil production and hold prices stable”, the Kuwaiti official said, speaking at a press conference held at this central Iranian city.
Prices fell on the news but later rose to new highs of above $56 a barrel on a surprise dip in US petrol stock levels. In London, the price of Brent North Sea crude oil for delivery in April jumped 1.10 dollars to reach also a new record of 54.95 dollars a barrel. The Brent price beat the previous record of 54.30 dollars reached on 9 of March.
The primary aim of the Esfahan meeting was to boost oil production and hold prices stable.
Oil analysts and traders were doubtful about the impact of the new output levels as OPEC members are already thought to be producing about two million barrels a day more than official production limits.
“In view of the expectation of another year of strong global oil demand, coupled with constraints in the downstream sector and the overall expectation of a slow-down in the pace of non-OPEC supply growth, requiring an increase in OPEC production in the second half, in particular the fourth quarter 2005, and in order to satisfy this market demand, ensure comfortable levels of stocks in the second half as well as halt and reverse the price escalation, the Conference decided to increase the production ceiling to 27.5 mbd, effective immediately.
“The Conference further authorized its President, after consultations with fellow Heads of Delegation, to announce an additional 500,000 b/d increase in the ceiling, until its next Meeting, should oil prices remain at current levels or continue to further rise.
In taking this decision, the Conference once again confirmed the Organization’s commitment to maintaining stability and ensuring that global markets remain adequately supplied at all times. To that end, Member Countries have already accelerated existing capacity expansion plans and are making timely investments to expand capacity in the longer term. Moreover, this decision is a reaffirmation of OPEC’s commitment to ensuring adequate supplies consistent with robust economic growth, in particular in the emerging economies of the developing world”, the final communiqué said.
Iranian Oil Minister Bizhan Namdar-Zanganeh said a 500,000 bpd rise in OPEC output meant lowering violations by members and it would be unlikely the members would violate their quotas if additional 500,000 bpd output is incorporated into the ceiling.
“These steps have three ramifications: rising the production ceiling, boosting oil production capacity to assuage market concerns by creating stability in the market and establishing security in the market in the future”, al-Sabah said, quoted by the official Irna news agency IRNA.
"If the two-phase production increase of 500,000 BPD to 28 million BPD is carried out the total OPEC output will hover close to 28 million BPD", al-Sabah underlined, adding that “one of the intended objectives is to respond to the numerous requests by the developing nations for stable price and affordable prices”.
"We hope the market gets a positive signal from this meeting, because OPEC did its most to have a stable market with minimal fluctuation", Mr. Namdar Zanganeh said.
"We are trying to make sure the market is stable. We're trying to provide stability to the market", Saudi Oil Minister Ali al-Nuaimi said, having signalled the kingdom would prefer to see prices to fall from the 55 dollar mark to between 40 and 50 dollars a barrel.
The oil producing countries in order to increase production need to invest more in the oil facilities. "The conference also concluded that a rapid response to the market movements is vital".
Oil analysts were doubtful about the impact of the new output levels.
On the thorny selection of a Secretary General, he added that given the respect for the ancient city of Esfahan "we thought that it's more appropriate to fill the position in Vienna to better keep our respect for the city".
But the Iranian Minister explained that it was due to the lack of consensus that decision on the issue has been suspended.
He expressed satisfaction about the meeting “since the members managed to quickly reach a conclusion”.
“OPEC's Wednesday decision to raise its production ceiling by 500,000 bpd would be helpful for members' economy and consumers”, he said, stressing however that “one cannot say for sure what effect the OPEC decision might have on the market and one should wait and see how the market would react”.
Speaking to reporters, the Iranian Minister also announced the inking of a memorandum of understanding with his Indonesian counterpart Purnomo Yusgiantoro for establishing a refinery in Indonesia.
Elsewhere in the interview, Zanganeh said oil price hike in the past six years has been unprecedented in the OPEC's 40-year history.
The Conference decided that the next ordinary meeting of the 12 members Organisation will be convened in Vienna, Austria, on 19th September 2005. ENDS OPEC 16305