Extra oil may not cap price boom

Opec producers yesterday considered a Saudi proposal for a modest increase in oil output but said they could not guarantee to cap record prices.

The Organisation of the Petroleum Exporting Countries, meeting today, is under pressure from consumer countries to take action to bring prices down from $55 a barrel.

Saudi Arabia is suggesting Opec lift official output limits by 500,000 barrels a day (bpd), two per cent, to 27.5 million bpd.

"Hopefully I will be convincing enough to move the rest to my thinking," said Saudi Oil Minister Ali al-Naimi.

The Saudi minister said his plan would mean actual Opec output, including existing leakage of about 700,000 bpd over formal limits, would rise from 27.7 million to 28.2 million bpd.

Cartel President Sheikh Ahmad al-Fahd al-Sabah of Kuwait said all in Opec were on board for more oil, but some countries wanted to delay implementing the extra supply until June. With group output already close to a 25-year high, producer countries are showing signs of concern about their ability to meet rapid demand growth in the second half of the year.

Saudi took the unprecedented step of announcing future supply plans, saying it would lift output later in 2005 to meet another year of heavy demand growth led by China.

"It is too high but you should not blame Opec," said Qatar Oil Minister Abdullah al-Attiyah of oil prices. "Opec has done all it can do. This is out of the control of Opec."

"There is not much we can do, we can make a good will gesture," said Algerian Oil Minister Chakib Khelil.

The only world producer with any significant spare capacity, Saudi is particularly concerned about demand in the fourth quarter of the year, when seasonal demand peaks.

Fund managers diversifying out of equities and treasuries have helped benchmark US oil prices to $48.74 average so far this year, up from $41.47 a barrel in 2004 and $30.99 in 2003. US crude yesterday eased two cents by 1250 GMT to $54.93 a barrel, just shy of October's record $55.67.

"The price risks are more to the upside than the downside," said analyst Yasser Elguindi of Medley Global Advisors. "

"There is lot more demand for the second half of the year than Opec realised at the start of the year. They need to catch up to that reality."

Opec experts now are projecting growth of 1.9 million barrels a day on the 84-million-bpd world market, following last year's burst of 2.6 million bpd.

Worried that energy costs could derail economic growth, US Energy Secretary Sam Bodman contacted a number of Opec nations on policy ahead of the meeting, ministers said. Inflated fuel bills have yet to cause any significant deceleration in world growth, but some in Opec are concerned about the long-term impact of high prices on fuel demand.

"We're concerned about prices, we're also concerned about economic growth and we're particularly concerned about economic growth in developing countries," said Saudi's Minister al-Naimi.

Others in Opec see no economic damage from even higher prices, pointing out that the peaks of the 1970s, allowing for inflation, were equivalent to $80 a barrel in today's money. "Even at $60 we see no economic impact," said Libyan Energy Minister Fathi Omar Bin Shatwan.