Oil prices climbed to another 10-year high Tuesday, reflecting concerns that the
Organization of Petroleum Exporting Countries'
expected production increase of half a million barrels a day may not be enough to reverse rising crude oil prices.
Though ministers of OPEC are expected to approve increasing daily production by at least a half-million barrels when they meet this Sunday, the widely anticipated move has not kept the price of a barrel of oil from climbing into the low $30s over the past two weeks -- far higher than the $25-per-barrel of light crude oil target pushed by the Clinton administration.
On Tuesday, the October contract for crude oil traded on the
New York Mercantile Exchange
for as much as $33.98 -- its highest price since March and near its highest levels in a decade -- before settling up 45 cents at $33.83 a barrel. Meanwhile, in London, the October contract for North Sea Brent Crude oil gained 14 cents to settle at a new 10-year high of $32.98.
Now, industry analysts say OPEC members may actually have to raise official production quotas by at least a million barrels a day in order to tame runaway oil prices. The revised figures come on the heels of new reports indicating that Saudi Arabia may have unilaterally gone ahead with a proposed increase of a half-million barrels a day as early as last month.
"If the production numbers are right, and it's not even making a dent in the price, then we're heading towards a really scary situation with demand eating up increases in supply," said Phil Flynn, energy analyst at Chicago-based
"Right now, the market is betting that whatever OPEC does, it won't be enough," he added.
Under an informal mechanism implemented at their June meeting, OPEC members agreed to raise production by 500,000 barrels a day if the price of oil in its "basket" (which includes blends from Algeria, Indonesia, Saudi Arabia, and Venezuela) stayed above $28 a barrel for 20 consecutive business days.
Analysts at the London-based
GNI Research Group
said there is no doubt that the mechanism will have set off such an increase by this Friday, as this basket of oil has remained above $28 a barrel since reaching $28.53 on Aug. 14.
Analysts aren't sure a 500,000-barrel increase would be enough even to bring OPEC oil basket price back below $28 at this point. "So the real question is whether we should expect more oil from OPEC," GNI analysts said.
How much more?
Tim Evans, senior energy analyst at
, said the market is expecting something close to OPEC's earlier official increase in June of 708,000 barrels a day, along with a variation on the automatic price band. That could mean a price band adjustment on the upper end to $30 per barrel, for example, and may actually translate to a net daily increase of just 200,000 barrels per day, if recent reports about increased Saudi production are accurate.
Christopher Stavros, a
analyst, projects a 75% chance that OPEC ministers meeting Sunday will approve an increase in the range of 500,000 to 800,000 barrels a day. An increase in the middle of the range, he added, "would merely legitimize the current cheating within OPEC."
While OPEC members appear to agree that current oil prices are too high, they have disagreed on what to do about it. Saudi Arabia proposed an increase of half a million barrels a day in mid-summer, but was unable to rally unanimous support from other OPEC members. There have been varying reports on whether Saudi Arabia, the world's top oil exporter, went ahead with the increase unilaterally. But recent figures seem to indicate an increase in production from OPEC.
Saudi Arabia, Kuwait and the United Arab Emirates are believed to be the only members of OPEC capable of implementing any substantial increases in production, as the remaining eight members are already producing oil at or near capacity.
The cost of crude oil is also affected by the speed with which U.S. crude oil and distillate inventories can be increased, and maintenance work can be completed on domestic refineries. Industry analysts say a sustained and substantial increase in inventories is imperative to force, and to keep, prices in a range of the low to mid $20s a barrel.
"We're still facing a logistical problem of getting oil here and to refiners," Flynn of Alaron said. Despite reported increases in supply, domestic inventories have remained at or near 24-year
lows in recent weeks.
Industry analysts say oil prices are likely to remain high ahead of the OPEC meeting unless domestic stocks show a sharp increase. The
American Petroleum Institute
, an industry group, and the
Department of Energy's Energy Information Administration
are slated to release the latest inventory data over the next two days; the reports were delayed because of the Labor Day holiday.