OPEC Will Increase Output in Case of Supply Disruption

Monday, 31 Jan 2011 06:52 AM

 

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The Organization of Petroleum Exporting Countries would increase output if current unrest in Egypt disrupts supplies of crude from the Middle East.

“If we see a real shortage we will have to add,” Secretary-General Abdalla el-Badri said in London. OPEC, whose members include Venezuela and Iran, accounts for about 40 percent of global oil supply.

Crude advanced earlier today amid concern anti-government protest in Egypt may spread to oil-producing nations in the Middle East. Roughly 2.5 percent of global production is shipped through Egypt via the Suez Canal and the Sumed oil pipeline, according to a Goldman Sachs Group Inc. report today.

“I don’t think the situation is out of control,” el-Badri said. A closure of the Sumed crude pipeline could cause a shortage in the market, he said, adding the oil market is well supplied with inventories at a high level.

OPEC last changed its production limits, or quotas, at the end of 2008 in response to a 54 percent drop in crude prices that year. The Suez Canal and Sumed pipeline aren’t running at full capacity currently, with most of the group’s production cuts from that time concentrated through those routes, according to the Goldman Sachs report.

“The main risk is that of political instability spreading to Middle Eastern oil producers,” Jeffrey Currie, London-based head of commodities research, said in the report. “Given the high level of affluence in the Gulf region, we see the probability of political contagion as relatively low.”

Boost Supply

OPEC members may boost oil supply this year in response to rising demand, Saudi Arabia’s oil minister said Jan. 24. Oil demand may increase globally as much as 1.8 million barrels a day in 2011, or 2 percent from last year, Ali al-Naimi said in a speech in Riyadh.

“OPEC’s policy, as is well known, is to meet any increase in oil demand to maintain the supply-demand balance,” he said.

The group’s compliance with the current output limits dropped to 45 percent last month, the Paris-based International Energy Agency said Jan. 18. OPEC kept quotas unchanged when it last met in December in Quito, Ecuador and has no plans to meet before its next scheduled meeting in June, el-Badri said.


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