VIENNA, Austria – OPEC is committed to keeping crude prices from rising further, and its members are investing to boost their production capacity to help stabilize a turbulent oil market, the group's president said Thursday.
The Organization of Petroleum Exporting Countries (search) is already pumping 2 million barrels a day above its output target of 25.5 million barrels, Purnomo Yusgiantoro told a news conference at OPEC's headquarters in Vienna. "That's partly because we are concerned with the price level that we see today," he said.
OPEC's official target price for its benchmark blend of crudes remains between $22 and $28 per barrel — a level that Purnomo reconfirmed.
The director of OPEC's research division, Adnan Shihab-Eldin, predicted some relief for U.S. motorists, saying that a recent recovery in the balance of supply and demand for gasoline in the United States should help "moderate" prices there.
Purnomo said a robust demand for oil imports from China, geopolitical tensions and refining bottlenecks in major importing countries have fanned "unwarranted fears" about possible crude shortages. To help calm a nervous and sensitive market, OPEC members are investing in their oil fields and facilities to add between 2.5 million and 3.5 million barrels of daily production capacity by the end of 2005, he said.
However, Shihab-Eldin later clarified to reporters that the net increase in spare capacity would only be half as large as Purnomo had indicated.
Shihab-Eldin said OPEC members would add between 1 million and 1.5 million barrels to their current spare capacity by the end of next year, for a new aggregate surplus of between 2.5 million and 3.5 million barrels. This new surplus would equal at least 10 percent of OPEC's current production ceiling.
The group has asked major non-OPEC producers such as Russia to increase their output capabilities in tandem with OPEC, but has so far received no assurances that they would do so, said Purnomo, who is also Indonesia's minister of energy and mineral resources.
"Today, what we feel is that they don't have much spare capacity," he said.
Analysts and OPEC itself expect oil demand to rise sharply during the autumn and winter as refiners stock up for the heating oil season. Barclays Capital in London estimates that demand in the fourth quarter will exceed today's level by an average of 3.1 million barrels a day.
"Whichever numbers you look at, there's a lot more demand to come," said Paul Horsnell, Barclays' head of energy research. "If the demand upswing is going to be that strong, then there won't be enough spare capacity, full stop."
Importers will have to dip far into their oil inventories to see them through the lean winter months, he said.
Barclays Capital anticipates that U.S. crude prices will average $40 a barrel in the fourth quarter. Horsnell said he wasn't likely to change that forecast as a result of Purnomo's comments, but he expressed concern that even a modest supply shock could trigger "explosive prices moves."
In Iraq, saboteurs have targeted oil pipelines and production facilities, and Shihab-Eldin voiced "a reasonable expectation" that Iraqi output for the next few months would reach but not exceed 2.3 million barrels per day. That is well below initial projections that Iraq would be producing 2.8 million barrels per day by June.
"We in OPEC accept that this is a challenging time in the oil market, with an unusually powerful combination of forces that are currently dominating the market activities and adversely affecting its equilibrium," Purnomo said.
OPEC is committed, he said, "to do everything we can to restore prices to reasonable levels that are acceptable to producers and consumers alike — and to keep them there."