VIENNA – OPEC producers, considering lifting oil output limits, said on Monday they had little left in their arsenal to rein in prices now back above $55 a barrel.
The Organization of the Petroleum Exporting Countries (search) says it is operating close to full crude supply capacity and can do nothing to combat a global squeeze on refined products, particularly diesel.
Ahead of a Wednesday OPEC meeting, leading producer Saudi Arabia, backed a proposal for an increase in cartel crude supply limits of 500,000 bpd, 2 per costs.
"You know and I know that what is driving the price is not supply — it's the lack of refining capacity worldwide," Naimi told reporters in Vienna, home to OPEC headquarters.
"Everybody is concerned about middle distillates," he said in reference to the refined products diesel, jet fuel and heating oil.
Traders said the remarks helped underline market concerns about the ability of refiners to meet rising demand in the second half of the year, sending U.S. light crude rushing $1.86 higher to $55.35 a barrel.
"Diesel prices have been sustained by several factors including strong global demand, extended refinery maintenance on upgrading units, and refinery disruptions in the Caribbean," said Goldman Sachs.
Prices are heading back toward to their April peak of over $58 after slipping to $46.20 during May, the lowest seasonal period for global demand.
The average price for the year so far is nearly $51 a barrel, up from $41.47 on average in 2004 and $30.99 on 2003.
Last year's Chinese-led demand boom took producers and refiners by surprise after years of slow investment in capacity across the upstream production and downstream refining industry sectors.
Iran, OPEC's second biggest producer, said the group was already at full stretch.
"OPEC members are already pumping at full capacity and can do nothing about prices," said Iranian oil minister Bijan Zanganeh in Tehran.
So far, the world economy has largely absorbed higher energy costs, helped in part by government subsidies in emerging economies.
U.S. diesel demand over the past four weeks has been running more then 6 percent higher than last year, according to government data, as the trucking industry moves Chinese imports to market from the West Coast.
But OPEC worries that a sustained period of $50 oil could hit long-term demand and create an incentive for investment in alternative fuels.
"More than $50 to $55 for the long term it seems is not good for the world economy," said Zaganeh. "It seems in the long term a very high price will probably have a bad effect on the world economy, and we prefer not to witness this situation, but I think OPEC cannot do anything."
A 500,000-bpd increase in official OPEC output limits would take output for 10 members with quotas, excluding Iraq, to 28 million barrels daily.
But it is unlikely to make much difference to actual OPEC supply.
The group is already pumping close to 28 million so a formal production increase would merely rubber stamp existing output.
"We are already doing more than the ceiling. There might be a legitimization of the overproduction," said Edmund Daukoru, Nigeria's presidential adviser on energy.