Saudi Arabia prevails with OPEC output hike

 

OPEC exporters agreed Tuesday to pump an extra 500,000 barrels of oil a day to cool near-record crude prices in an apparent victory for Saudi Arabia over its reluctant partners. 

The cartel is to open the taps from the beginning of November to ensure adequate supplies to the market heading into the northern hemisphere winter, the peak period for oil demand, ministers and OPEC announced. 

The cartel had been under pressure to take action as prices surged to near record highs close to 80 dollars in recent days, creating an extra burden for the global economy in addition to financial market turbulence and the US subprime housing crisis. 

Member countries have “decided to increase the volume of crude supplied to the market … by 500,000 bpd, effective 1 November 2007,” said OPEC spokesman Omar Ibrahim. 

Saudi Arabia appears to have forced through the increase in the face of stiff opposition from the majority of its partners, notably OPEC price hawks Iran and Venezuela. 

Until the weekend, an output increase had been entirely discounted, but pressure from consumer countries appears to have influenced the Saudi kingdom, a close US ally. 

The 10 OPEC members that are bound by production limits have raised their output target by 1.4 million barrels per day to 27.2 million bpd, from its current level of 25.8 million bpd, ministers explained. 

But this represents a real increase of 500,000 barrels per day from current levels because OPEC was already producing 900,000 bpd more than its output target, ministers said. 

The 12 countries of the Organisation of Petroleum Exporting Countries produce about a third of global oil supplies. 

Before the decision was announced, some ministers had been open about their unease at increasing production at a time when the outlook for global economic growth — which determines future demand for oil — is uncertain. 

Algerian Energy Minister Khelil Chakib drew parallels with an OPEC meeting in Jakarta in 1997 when Saudi Arabia forced through an output increase just as the Asian financial crisis was unfolding. 

Fears of a recession and reduced demand sent oil prices into a tailspin and they crashed to 10 dollars in 1999. 

“We still have a meeting at the summit (in November in Saudi Arabia) and an extra meeting in December where we could make the right decision and not the wrong decision — like what happened in Jakarta before where we had the same situation and we made the wrong decision,” argued Khelil. 

Global financial markets have been in turmoil in recent months due to problems linked to the US housing crisis and fears of tightening credit conditions. 

Many economists have lowered their forecasts for growth, particularly for the United States, but the impact of the market turmoil and tightening credit cannot be assessed at present. 

The Asian financial crisis of 1997 started with the collapse of the Thai baht before spreading to the rest of the region, raising fears of a global economic recession and setting back many Asian economies. 

AFP