OPEC agreed Tuesday to make 2 million extra barrels of oil a day available in an effort to reassure markets edgy over supplies for the winter and storms threatening refineries along the U.S. Gulf Coast.
The Organization of Petroleum Exporting Countries said it would offer the extra oil for three months starting Oct. 1, but that its output ceiling would remain unchanged at 28 million barrels a day.
“We want to show everybody that we have the ability to provide oil in the future,” said OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait’s oil minister. He said the 2 million extra barrels represented the group’s entire spare capacity.
“We hope that this will reflect positively on prices,” Sheik Ahmed added. “We are very keen to help the market. We know there are geopolitical and weather crises.”
Tuesday’s offer came as Tropical Storm Rita strengthened into a hurricane as it lashed the Florida Keys, threatening to inflict fresh damage on oil production facilities on the Gulf of Mexico coastline.
Oil ministers decided against raising the output quota by 500,000 barrels a day. But both steps were seen as largely symbolic: The cartel already is pumping about 28.5 million barrels a day, and making extra crude available will not change the fact that the world’s refineries can’t keep up with demand.
OPEC’s decision was overshadowed by Rita, which posed a fresh threat just weeks after Hurricane Katrina forced some U.S. refineries to shut down or scale back operations.
Oil prices fell more than $1 a barrel Tuesday after jumping more than $4 a barrel Monday in the biggest one-day price jump ever. Light, sweet crude for October delivery fell to $1.39 to $66.00 a barrel in morning trading on the New York Mercantile Exchange.
Most of the 2 million extra barrels will come from Saudi Arabia, the only country able to produce significant amounts of additional crude, although OPEC said all members would contribute.
Saudi Oil Minister Ali Naimi said he thought OPEC’s offer would reassure the oil markets.
“It is an excellent gesture from OPEC to provide 2 million barrels a day of spare capacity to the market,” Naimi said. “If the market feels it needs additional crude, they’re welcome to it. It’s there.”
The European Union had asked OPEC on Tuesday to provide the extra barrels.
“It’s just a small step ... I don’t think it’s going to be enough to bring the oil price down,” Rupert Krietemeyer, spokesman for EU Energy Commissioner Andris Piebalgs, said in Brussels, Belgium.
But Claude Mandil, head of the International Energy Agency, questioned OPEC’s ability to live up to its offer of an extra 2 million barrels a day.
“OPEC will be able to make more crude available, but it would be less than 2 million, somewhere between 1 and 1.5 million barrels per day,” he said.
Nigerian Oil Minister Edmund Daukoru said he considered it unlikely that the 2 million barrels a day would be needed, though he conceded that Rita’s potential impact was difficult to judge.
Mandil said the IEA may extend its release of emergency oil and fuel stocks if Rita hits already damaged U.S. Gulf Coast oil installations. He described the OPEC measures as “very limited” gestures.
Analysts warned that the storm had the potential to cause further problems for the oil industry.
“We really can’t afford to lose more production,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
“It’s tough to blame (OPEC) for higher oil prices. I think they’re doing what they can,” said Jason Schenker, an economist with Charlotte, N.C.-based Wachovia Corp., the fourth-largest U.S. bank.
Although the Saudis had pressed for a higher quota, previous OPEC increases have done little to ease market fears over supply.
“We don’t prefer to increase the ceiling at the moment,” said Qatar’s oil minister, Abdullah bin Hamad Al Attiyah. “There’s now oil available for three months and if the world needs oil, it’s available.”
Daukoru dismissed a higher output ceiling as a meaningless “gimmick,” and insisted that the extra 2 million barrels a day was “a much more pragmatic approach.”
He said OPEC was worried about a possible glut of crude in the second quarter of 2006 after winter demand subsides. “That’s the period we have to watch,” he said.
Most ministers maintain that the market is well supplied with crude and the problem lies with refining products.
“I hope all governments will help us to build more refineries,” Sheik Ahmed said.
OPEC said it adopted a long-term strategy plan designed to deal with most market conditions through 2020, and that its next meeting would be held on Dec. 12 in Kuwait. Daukoru will take over as OPEC president on Jan. 1, the group said.