Date:28/09/2004 URL: http://www.thehindubusinessline.com/2004/09/28/stories/2004092800221100.htm

Back `No OPEC decision yet on crude output hike'

Vimala Vasan

Abu Dhabi , Sept. 27

THE Organisation of Petroleum Exporting Countries (OPEC) has not yet taken a decision to further increase output to bring down skyrocketing oil prices which an OPEC member state official says is purely market driven due to speculation in the oil futures market and fears that political tensions in Iraq and elsewhere could lead to supply disruptions.

The Qatar's Energy and Industry Minister, Mr Abdullah bin Ahmed Al Attiyah, who inaugurated a conference on the potential and constraints in the Gulf oil and gas sectors in Abu Dhabi, told newspersons that OPEC was not responsible for the huge hike in prices.

He ruled out any immediate hike in output, but said that the issue would be discussed at the forthcoming extraordinary meeting of OPEC to be held in early December in Cairo. "I maintain that the hike in prices is market driven and has no connection with supply or demand. It is being fed on speculation and psychological factors related to political tensions and fears of supply disruptions. I do not see any shortage of supply - there are no queues in gas stations," the Minister said.

On the issue of raising OPEC production capacity, he said: "If there is a need we will produce more but I cannot say anything as yet on this issue till the next meeting.

We are, however, working on building our spare capacity at the right time and hope to pump more in due course," he said.

On the possibility of prices being driven down prior to the US elections later this year, Mr Attiyah said: "We cannot forecast oil prices and believe it will be primarily a market determined development."

He spoke of a new OPEC strategy that would focus on balancing supply and demand to reduce speculative price hikes. Dr Adnan Shihab Eldin, Director, Research Division, OPEC, said an OPEC technical committee is working on an acceptable price brand possibly ranging from $30 to 35 a barrel in order to curb huge speculative hikes in oil prices.

He indicated that the economic impact of continued high oil prices would be felt most in Asian countries such as India and China where demand for oil and gas is likely to rise substantially in the coming years.

He pointed out that following a period of relatively stable prices in the period between 2000 and 2003, the year 2004 has witnessed very high oil prices despite adequate supply.

"The main factors for this hike are higher demand touching three per cent this year compared to 1.6 to 1.7 per cent in the last ten years.

Fears that political tensions could limit supplies as well as speculative activities in the downstream sector have also been contributory factors," he said.

OPEC, he said, would continue to use spare capacity to stabilise the market. Increased demand in the coming period would see heavy investments by OPEC members in the hydrocarbon sector as they move to expand production to hike their additional spare capacity levels.