VIENNA (Reuters) – OPEC on Wednesday prepared to raise oil output limits but lack of spare capacity means the cartel may fail to topple prices from $55 a barrel.
The Organization of the Petroleum Exporting Countries is expected to raise its formal production quotas by 500,000 barrels a day to 28 million bpd, excluding some 1.8 million from Iraq.
But that will merely legitimise its existing output, postponing an even greater test for hard-pressed producers for the fourth quarter, when annual world demand peaks.
"We have to prepare for the fourth quarter. Demands on OPEC will increase to 30.5-31 (million bpd) and we have to prepare ourselves to continue increasing our production just to reach the call on OPEC," said cartel President Sheikh Ahmad al-Fahd al-Sabah of Kuwait.
Ministers began meeting at 0800 GMT, 1000 local time at OPEC headquarters in Vienna with only price hawk Venezuela against raising supply allocations.
A ministerial committee also recommended that, should prices not fall, OPEC”s president be authorised to trigger a further 500,000 bpd increase, perhaps in late July or early August.
Oil prices have risen strongly this week, despite OPEC”s plan, driven by worries about a lack of cartel spare capacity and because of a squeeze on refined products, particularly diesel.
U.S. crude by 0825 GMT was up 49 cents to $55.49 a barrel, extending a recovery from a low in May of $46.20.
Saudi Oil Minister Ali al-Naimi said OPEC could not force-feed a market already sated with crude when a shortage of refined products was supporting prices.
"We will put more new oil on the market when the demand emerges. Price has nothing to do with it," said the minister.
"What Saudi Arabia wants to know is where are the customers?"
Analysts said the fourth quarter would test OPEC, and refiners, to the limit.
"What”s scary for the market is that we”re just moving out of the lowest period of demand for the year and OPEC at full stretch was unable to keep prices down," said Gary Ross of U.S. consultancy PIRA Energy.
"World demand in the second half will average 3 million barrels a day more than in the second quarter."
OPEC supplies about 40 percent of world demand of 84 million bpd.
Saudi holds some spare volume of heavy, high-sulphur crude that needs advanced refinery technology to meet Western environmental regulations.
A shortage of that type of refinery capacity has squeezed global supplies of refined products known as middle distillates — diesel, heating oil and jet fuel.
Iraq”s new oil minister, Ibrahim Bahr al-Uloum, highlighted concerns about the lack of spare capacity in global crude production.
Plagued by security issues and a lack of investment, Iraq”s exports are stuck at 1.5 million bpd, he said, less than pre-war capacity. Hopes are pinned on foreign investment contracts that will not be signed until the end of 2006 at the earliest.
OPEC member Venezuela”s output is at just 2.6 million bpd after failing to recover back above 3 million following an anti-government strike in 2002 and early 2003.
Russia, the biggest exporter outside OPEC, has seen output growth slow sharply this year after the Kremlin cracked down on YUKOS as part of a campaign to regain political control over the Russian oil sector.