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OPEC Agrees to Increase Oil Output

Jad Mouawad, New York Times
OPEC sought to stamp its authority back on volatile oil markets today by agreeing to increase production by 500,000 barrels a day to meet an expected surge in winter consumption and push prices down.

At the same time, OPEC’s top representatives said they feared that a slowing world economy might dampen future demand. The oil cartel signaled that it would be ready to act “swiftly” to protect the interests of its members.

Oil markets seemed to shrug off OPEC’s decision as not significant enough. Crude oil futures for October delivery closed today at $78.23 a barrel in New York, up 74 cents, exceeding the previous record close by 2 cents.

The decision by members of the Organization of the Petroleum Exporting Countries came after an unusually long day of arguments about the size and the timing of the increase in production.

While modest in size, the announcement still came as a surprise to many. Some OPEC countries, including Iran, Venezuela and Algeria, had initially voiced strong opposition to an increase in supplies. Others feared that a mistimed decision to add supplies might backfire at a time of heightened concerns about the economy.
(11 September 2007)
Also posted at TOD Drumbeat. Related stories from:

Kevin Drum at Washington Monthly points out:
OPEC agreed today to increase oil production by 500,000 barrels per day. But check out this sentence in the New York Times coverage:

Consuming nations, including the United States, have been urging OPEC producers to put more oil on the market, warning that the winter months would see a big jump in consumption that non-OPEC producers would not be able to meet.

Note that this is now apparently conventional wisdom: the only spare oil production capacity left in the world is in OPEC. The non-OPEC peak isn’t five years off, or ten years off. It’s now.

Contributor Hurricane Jim writes:
500,000 bpd…are we supposed to be impressed by this? I hate to say it, but that’s about enough petrol for N. VA to take one trip to the Wal-Mart and back. I fear that the issue here, with so called production increases, isn’t about markets or capacity, but more about letting the cat out of the bag…as in their “spare capacity” isn’t all it’s cracked up to be anymore, a fact the world is probably going to find out about sooner rather than later.

Oil Prices Continue to Rise After Previous Session’s Record Close

Gillian Wong, Associated Press
Oil prices rose to a new record settlement price Tuesday as traders turned their attention to a government inventory report expected to show tight supplies and shrugged off OPEC’s decision to boost output.

Even factoring in OPEC’s decision to increase oil production by 500,000 barrels per day starting Nov. 1, “supplies are tight,” said Addison Armstrong, an analyst at TFS Energy Futures LLC.

And according to analyst predictions, they’re going to get even tighter. Analysts surveyed by Dow Jones Newswires, on average, expect Wednesday’s report from the Energy Department’s Energy Information Administration will say that crude oil inventories fell by 2.7 million barrels in the week ended Sept. 7.
(11 September 2007)
Contributor Hurricane Jim writes:
Well, it seems that the guys who earn their living wheeling and dealing in crude aren’t terribly impressed with OPECs 500,000 bpd announcement. I don’t think anyone else who’s switched onto the impending “issue” we face with energy, and oil in particular, is either.

Fundamentals don’t justify $70 oil price-Exxon CEO

Oil market fundamentals do not justify a crude oil price as high as $70 a barrel, which is below today’s level, Exxon Mobil Corp’s (XOM.N: Quote, Profile, Research) top executive said on Friday.

“I cannot explain why we have $70 oil. The fundamentals behind supply and demand do not support $70 oil. The fundamentals support something much less,” Exxon Mobil CEO Rex Tillerson told a business roundtable at the Spruce Meadows equestrian facility on the outskirts of Calgary.
(7 September 2007)

Platts: OPEC Out Dips in August

OPEC crude production fell by 40,000 barrels per day (b/d) in August, to 30.46 million b/d from 30.5 million b/d in July, mainly because of lower exports from Iraq, a Platts survey showed September 7.

The ten members bound by production agreements, however, boosted output by 80,000 b/d, to 26.79 million b/d in August from 26.71 million b/d in July, the survey showed.
(7 September 2007)

Indonesia and OPEC

(Original: Oil hovers around $75)
Peg Mackey, Reuters
…Crude inventories in the world’s top consumer were expected to decline by 400,000 barrels after bad weather interfered with imports. Gasoline stocks were seen down by 1.5 million barrels, a Reuters poll showed prior to Thursday’s release of weekly U.S. data.

“An elevated number of refinery outages have continued to plague the market and with demand staying solid, inventories have fallen to critically low levels,” said a Barclays Capital report.

…Some analysts expect oil supplies to strain to match demand later this year unless the Organization of the Petroleum Exporting Countries decides to ramp up production.

Comments from OPEC members suggest the group is likely to stick with existing output levels when it gathers on September 11. Only Indonesia, OPEC’s second-smallest producer, has said it may propose an increase.
(5 September 2007)
Contributor Jeffrey J. Brown writes:
Which member of “OPEC” is suggesting an imminent supply boost?

Hint: they are a net importer, that showed about a 75% per year decline rate in net exports from 2000 to 2003 (net exports in 2000 were about 500,000 bpd, total liquids; they were a net importer in 2004).

Saudi Arabia keeps Oct crude supply steady

Daily Times (Pakistan)
TOKYO: Top oil exporter Saudi Arabia has told customers in Asia and Europe it will keep its crude supplies steady for October from September levels, backing expectations that an OPEC meeting on Tuesday will maintain supply curbs.

State oil firm Saudi Aramco informed buyers in monthly notices it would continue to supply Asian lifters with around 10 percent below their full contractual volume, as it has since April, industry sources in Japan and South Korea said on Monday.

It will also keep shipments steady to two European refiners, indicating the world’s largest producer is keeping a lid on supply. . .

. . . The International Energy Agency, which represents industrialised consumer nations, forecasts their crude oil stocks will fall to the bottom of the five-year average range by January, unless OPEC pumps more crude oil, and fast.
(11 September 2007)
Jeffrey J. Brown
Saudi crude oil production has now been falling for all, or part of, three years–2005; 2006; 2007–although it has been flat in recent months, down about one mbpd from its 2005 peak.

However, the prior swing producer, Texas, showed a relatively low initial decline rate, averaging about 3.4 mbpd in 1973 and 1974, versus the peak rate of 3.5 in 1972.

In any case, Saudi Arabia’s annual decline rate since 2005 (5.5% per year) has been comparable to the long term Texas decline rate from 1972 to 2006 (4% per year).