Oil Reaches Record as OPEC Says It Doesn’t Need to Raise Output

Bloomberg: Oil Reaches Record as OPEC Says It Doesn’t Need to Raise Output

By Christian Schmollinger and Angela Macdonald-Smith

April 21 (Bloomberg) — Crude oil rose above $117 a barrel for the first time in New York after OPEC said it will maintain production, rejecting calls from the U.K. and Japan to boost output.

There is no shortage of oil in the market, Secretary- General Abdalla el-Badri said yesterday in Rome, blaming the weak dollar and speculators for high prices. Even if the Organization of Petroleum Exporting Countries raises production, “we will not find people to buy the increment,” President Chakib Khelil said, as cited by Kuwait’s state news agency.

“From a real supply point of view, OPEC doesn’t feel any necessity to produce more crude oil,” said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo. “We’re seeing more money coming into the oil market and it raises demand for futures contracts, not the real thing.”

Crude oil for May delivery rose as much as 36 cents, or 0.3 percent, to $117.05 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since futures started in 1983. Oil traded at $116.65 at 1:39 p.m. in Singapore. On April 18, futures climbed $1.83, or 1.6 percent, to $116.69 a barrel, a record close.

Prices advanced 6 percent last week, the biggest weekly gain since February 2007, and are up 77 percent from a year ago.

The May contract will expire tomorrow. The more-active June contract was at $116.15 a barrel.

Brent crude oil for June settlement was at $113.90 a barrel, down 2 cents, on London’s ICE Futures Europe exchange at 1:40 p.m. Singapore time. The contract on April 18 rose $1.49, or 1.3 percent, to $113.92, after reaching a record $114.22.

`Temporary Surplus’

The growing concerns about a slowing U.S. economy and higher gasoline price may lead to even lower demand for oil in the second quarter, a time when oil demand falls, OPEC said in its monthly report on April 15.

Any increase in output won’t affect prices because there is a “balance” between supply and demand, Khelil said, as quoted by Kuwait’s state news agency.

“There are those that make that argument that say the market isn’t tight; the contrary view is that the supply side, particularly outside of OPEC, is fragile,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “From OPEC’s point of view, they don’t want to add oil into the market and create a temporary surplus.”

Commodity Investors

Investors have transferred money into commodities, especially energy, during the past year because their returns have outpaced stocks and bonds. Oil gained 22 percent, while the S&P 500 slid 5.6 percent and government bonds returned 12 percent, according to Merrill Lynch & Co. indexes.

Investments tied to commodity indexes rose as much as $4 billion in the first quarter, a third more than in the final three months of last year, Standard & Poor’s said April 18.

Oil prices are “too high” and are affecting the economies of developing nations, Nobuo Tanaka, executive director of the International Energy Agency, said April 19 in Rome. He called on OPEC to allow fuel inventories to build.

Japan proposes to Saudi Arabia “to be co-operative on a stable price,” Shin Hosaka, director of the oil and gas division at Japan’s Ministry of Economy, Trade and Industry, said in an interview yesterday in Rome. Oil-consuming countries should step up pressure on producers to increase output, U.K. Prime Minister Gordon Brown said April 15.

`Oil Defies Gravity’

“Who would have thought oil would be just around the corner from $120 a barrel and we could be there by the end of the month,” said Peter McGuire, managing director at Commodity Warrants Australia Ltd. in Sydney, in an interview with Bloomberg Television. “It just defies gravity and the dollars are just floating into that.”

Prices were supported by potential supply disruptions in Nigeria, Africa’s largest producer. A possible strike at a refinery in Scotland highlighted how thin fuel supplies are in the U.K.

The main militant group in Nigeria’s oil-rich Niger Delta said it sabotaged a pipeline operated by a unit of Royal Dutch Shell Plc April 17. Nigerian gunmen on April 20 kidnapped the wife of the chief executive officer of Lonestar Drilling Nigeria Ltd. in the main Delta city of Port Harcourt, a military spokesman said.

Ineos Group Holdings Plc, a closely held chemicals company, may have until April 25 to prevent a potential, monthlong shutdown of its refinery at Grangemouth in Scotland, causing possible fuel shortages in the region.

The 200,000 barrel-a-day refinery, now in the process of being shut down because of a strike planned for April 27-28, isn’t “at the critical point where there’s no going back yet,” Richard O’Brien, a spokesman for the Unite union, said yesterday in a phone interview. That point may be April 24 or April 25, he said.

A full shutdown of the refinery, Britain’s sixth-largest, may cut output for as long as a month, Unite said April 18.

To contact the reporters on this story: Angela Macdonald-Smith in Sydney at [email protected]; Christian Schmollinger in Singapore at [email protected].

Last Updated: April 21, 2008 01:46 EDT

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