OPEC to boost output for first time in a year The 500,000-barrel-a-day increase was prompted in part by concerns over the U.S. subprime-mortgage crisis.

Posted: September 12, 2007

VIENNA, Austria — OPEC agreed yesterday to boost oil production for the first time in more than a year, concerned that near-record prices might damage a world economy already suffering from weakness in the U.S. housing industry.

Saudi Arabia, the largest member of the Organization of Petroleum Exporting Countries, led the group to add 500,000 barrels a day to its current production level, starting Nov. 1. The new target will be 27.2 million barrels a day, Kuwait's acting oil minister, Mohammed Abdullah al-Aleem, said in an interview.

"OPEC's concern was, we think the market was a little bit tight," Aleem said. The move was made, he said, "to look after the concern of the consumer."

OPEC pledged to "vigilantly monitor" other factors buffeting crude-oil markets, including worries that supplies might not keep pace with higher demand later this year as winter arrives in the Northern Hemisphere.

Significantly - and surprisingly - the 12-nation cartel said the increase would be based on current production, meaning it would add real oil to the market.

In the recent past, OPEC has raised only its official output quota; because the cartel tends to pump more than those targets, the increases were purely cosmetic.

OPEC's previous official target was 25.8 million barrels a day, but it was actually pumping 26.7 million barrels. Thus, yesterday's change will be an increase of 500,000 barrels.

"The fact that they're actually adding oil is very, very positive," said John Hall, an analyst with John Hall Associates, of London.

After OPEC's announcement, light, sweet crude for October delivery rose above $78 a barrel on the New York Mercantile Exchange. By the end of an up-and-down session, the price had risen 74 cents to settle at $78.23 a barrel, beating the previous record, set July 31, by 2 cents.

Crude hit an intraday record of $78.77 a barrel in early August on the Nymex, and prices since have been holding fairly steadily above $76.

Simon Wardell, a senior energy consultant with Global Insight Inc., said high crude costs might be here to stay.

"While OPEC's move will have a short-term price effect, the medium-term picture appears to be set for continued high prices," he said.

OPEC's secretary-general, Abdalla Salem el-Badri, told reporters the cartel's decision to loosen its taps had been based in part on the effects of the crisis in the U.S. subprime-mortgage market, where defaults have prompted lenders to tighten loan requirements.

That has sent ripples across all sectors of the economy, including the energy market, raising fears of a U.S. recession and reductions in demand for oil and gasoline.

"We have seen the financial markets and the subprime mortgage [crisis] putting some clouds on the horizon," Badri said.

OPEC supplies about 40 percent of the global demand for crude.

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