February Brent Crude Trading

OPEC not expected to increase oil output
By Dow Jones/AP, 12/31/2003

LONDON -- Today will likely mark the 20th day of oil prices that remain above the recommended price target of the Organization of Petroleum Exporting Countries, but the group is not expected to consider an output increase.

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OPEC has said that if the price of a certain basket of crudes remains above $28 for 20 days, it will act to bring prices down. Likewise, it curtails production if prices fall below $22.

"The mechanism is still there, but current high oil prices has nothing to do with supply," OPEC President Abdullah bin Hamad al-Attiyah said.

OPEC says speculative buying ahead of an expected production cut next year and instability in the Middle East are behind high oil prices, not a shortage.

An increase now would also worsen an expected springtime glut, the group says.

"No one's expecting them to act," said Adam Sieminski, an energy analyst at Deutsche Bank.

OPEC says energy watchdogs like the International Energy Agency and the US Department of Energy are overplaying record low commercial oil inventory stocks, since new technologies let refineries operate efficiently and reroute products quicker.

The group also says it's comfortable with higher prices because a weaker dollar against the euro has eaten into its buying power.

Furthermore, it appears from OPEC's September cut in its output ceiling that it has begun to defend a higher "floor" to its price mechanism of around $25 per barrel.

But, while it appears the band's upper limit is largely symbolic, the group says it hasn't abandoned the mechanism -- though it's only been triggered once in the four years since it was implemented. The October 2000 increase caused a counter-seasonal build in oil stockpiles that sent prices down $10, just at peak winter demand.

OPEC will release its basket price calculation Monday, because of the New Year holiday.

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