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Financial Times: Oil prices jump as Opec considers output lift

By Javier Blas and Ed Crooks in Vienna
Published: September 11 2007 08:22 | Last updated: September 11 2007 08:22

Crude oil prices on Tuesday jumped above $78 a barrel as the Organisation of the Petroleum Exporting Countries Opec started to discuss in Vienna a small production increase in an effort to cool high oil prices and reassure industrialised countries.

Prices rose to $78.32 a barrel in New York, just below the all-time high of $78.77 a barrel reached in early August, before easing to $77.71.

Abdalla el-Badri, Opec secretary-general, said on Tuesday the current oil price was “a problem and we will discuss what we can do.”

Moves towards $80 a barrel would increase pressure on the cartel to act. The largely symbolic increase under discussion, in the range of about 500,000-1m barrels a day, could simply formalise the oil cartel’s current oil production, which is above its official limits, rather than adding extra barrels to the market.

Mohammed al-Aleem, Kuwait’s acting oil minister, on Monday said that oil producers had a relationship with consumer countries. “We have to take care of them as they are taking care of us,” he said.

Negotiations were continuing in Vienna amid support from Gulf producers, such as Saudi Arabia and Iraq, and strong opposition from price hawks Venezuela and Iran. a final decision is expected later on Tuesday.

Saudi Arabia had been warning that crude oil demand toward the end of the year could be stronger than Opec’s official projection.

The kingdom, the largest world’s oil producer and most powerful Opec member, is also concerned that the current structure of oil futures prices, in which spot prices are trading above long-term prices, would encourage oil refineries to run down their inventories, creating additional demand later on the year.

The attempt to increase oil production came amid strong political pressure from the US and other leading oil consumers.

Sam Bodman, US secretary of energy, said he had phoned ministers from the oil cartel and asked them to pump more oil. “I have encouraged them to increase their supplies,” Mr Bodman said. “They heard. They were courteous.”

The International Energy Agency, the industrialised countries’ energy watchdog, reiterated its call for an Opec production increase ahead of the northern hemisphere winter, when demand traditionally surges.

The IEA forecast oil demand would jump from the current 86.1m b/d to 88.1m b/d between October and December, leading to a rapid fall in inventories if Opec kept production unchanged.

Although delegates from the cartel do not see a “dramatic” drop in stocks, they see a tighter balance between supply and demand than a year ago, when oil prices fall more than $20 a barrel in three months forcing Opec to cut its production by 1.7m b/d.

However, Venezuela and Iran are concerned that oil demand could slow down on the face of the US subprime crisis and say the cartel should wait until its next meeting, in December, to discuss any production increase.

Opec officials said a compromise proposal might be an agreement for a production increase in December, rather than immediately.

Vera de Ladoucette, of Cambridge Energy Research Associates, said Opec was facing a difficult fine-tuning operation.

“On the one hand, Opec doesn’t want to be seen as exacerbating the economic slowdown due to higher oil prices,” Ms de Ladoucette said. “On the other hand, if the economy really slows down, an increase in production would be counterproductive to Opec interests as oil prices may fall,” she added.

Copyright The Financial Times Limited 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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