Opec hike unlikely to soften oil prices

The Organization of Petroleum Exporting Countries (Opec) is likely to decide on raising daily production by 500,000 barrels at its December 5 meeting in Abu Dhabi. However, analysts say the move will have minimal impact on oil prices.

"The oil producers' cartel is likely to raise production to take advantage of oil prices at record high levels (near $100 a barrel)," said Kishore Narne, research head, Anand Rathi Commodities.

Analysts were of the view that oil prices may temporarily fall to $89-90 a barrel levels but will bounce back, buoyed by high demand for petroleum products like heating oil during winter in the Northern Hemisphere.

Oil prices may touch $108 a barrel levels during Jan-Mar, Narne added.

The OPpec output increase will be in addition to the already announced production increase of 500,000 barrels a day that came into effect on November 1.

According to Opec estimates, in October, it produced 30.99 million barrels per day (bpd), up 267,900 bpd from a month ago. In November, the figure is expected to have risen to 31.60 million bpd.

According to early estimates by PetroLogistics, the oil cartel appears to have raised production by 750,000 bpd during October-November, exceeding the previously announced limit.

Analysts said Opec members have been exceeding their production limits since October and any increase in output quotas will be acknowledging the overproduction.

On November 21, January crude oil futures on the New York Mercantile Exchange (Nymex) touched an all-time high of $99.29 a barrel and has stayed in the $93.50-99.11 range since.

At 11 am, Nymex January crude oil contract was at $93.80 a barrel, down 62 cents from Tuesday.

"Although prices may weaken in the lead-up to the Opec meet and on announcement of an increase in output, the overall medium-term outlook for oil prices remains bullish," said Avinash Raheja, senior vice-president, Commtrendz Risk Management Services.

Gholam Nozari, oil minister of Iran, Opec's second largest producer, said there is enough oil in the market but the country was ready to increase crude production by 500,000 bpd at the Abu Dhabi summit.

However, Nozari said increasing Opec oil output will have no effect on oil prices as the recent price rise was due to factors like speculation and geopolitical issues.

Opec members Indonesia and Iraq have announced they would agree to a 500,000 bpd output increase if the oil cartel takes that decision.

Other Opec members like Venezuela, however, continue to be averse to a production increase as President Hugo Chavez feels current oil prices are "fair".

As global oil stock levels have fallen over the past six months, Opec has been under pressure from major consumers, research bodies, and oil bodies to increase production, and so an output increase is likely, analysts said.

"I do believe there is a lack of willingness (in Opec) to supply the market. It is contributing to the price environment," US Energy Secretary Samuel Bodman said earlier this month while calling on Opec to raise supplies.

International Energy Agency Executive Director Nobuo Tanaka recently called on OPEC to raise output to quell high oil prices as "these high prices...will have a very negative impact on the world economy."

Estimates indicate that during summer, when global oil inventories normally rise by a million bpd, there was a fall of 300,000 bpd this year.