Financial Times: Opec barely registers on Beaufort scale (ShellNews.net)
By Kevin Morrison
Published: September 11 2004
Two separate events will be focusing the minds of crude oil traders next week. One is Hurricane Ivan, the other is the meeting of the Organisation of Petroleum Exporting Countries, which gathers in Vienna on Wednesday.
While Hurricane Ivan has tormented the Caribbean this week, weather forecasters are unsure whether it will head towards the US oil fields in the Gulf of Mexico. Royal Dutch/Shell has already evacuated some production staff.
If meteorologists were measuring the impact of the Opec meeting on the oil markets they might rate it as a light wind that at worst could develop blustery conditions. Unless of course Opec does the unthinkable and cuts production.
The International Energy Agency, the adviser to industrialised nations, warned of climbing crude inventories in consuming nations in its latest monthly report, a trend not seen as excessive by many energy analysts. Opec has used IEA analysis before for making unexpected cuts to quotas and production.
Analysts said Opec was unlikely to increase output, as it was producing at its highest rate in 25 years and was very close to production capacity. Opec could, however, raise its production quota from the current 26m barrels per day to better reflect the actual output. The 10 Opec members subject to quotas, which exclude Iraq, are producing 27.53m b/ d, according to the IEA.
Opec may be reluctant to raise quotas given that the increase in production this year by the oil cartel has mainly led to poorer grades of oil being produced.
This increase has led to a wide discount between the price of this type of oil, known as heavy sour crude, to the benchmark crude prices traded in London and New York, which reflect higher grades known as light sweet.
Much of this heavier type of oil, leaving the Middle East destined for Asia, Europe and the US, is trading at $6 to $7 lower than the benchmark Brent crude price traded in London, double the normal discount of about $3.
"Oil is cheaper than it looks," said one London trader. IPE Brent for October delivery rose 18 cents to $42.40 a barrel in early afternoon London trade, extending the $1.83 advance from the previous session.
October Nymex WTI added 28 cents to $44.88 a barrel in electronic trade, furthering the $1.84 gain from Thursday.
The New York Mercantile Exchange (Nymex) delayed the pit-trading opening hours to mark the September 11 tragedy.