Tulsa World: OPEC raising output despite ample supplies

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OPEC raising output despite ample supplies

By MARK SHENK Bloomberg News
Published: 11/10/2009 2:26 AM
Last Modified: 11/10/2009 8:38 AM

OPEC is increasing output at the fastest pace in two years, adding to near-record inventories and threatening speculators betting on $100 crude with losses, analysts say.

The number of options contracts to buy oil at $100 by March almost quadrupled in October and increased another 5.9 percent so far this month. As traders piled in, OPEC boosted production 4 percent, or 1.1 million barrels a day, since March amid the worst global recession since World War II.

Saudi Arabia's King Abdullah has targeted $75 oil as a fair price for consumers and producers and has the capacity to increase pumping by about 50 percent, or 4 million barrels a day, enough for all of Brazil.

The prospect of more supply comes with inventories in industrial countries already the highest since 1998, when oil collapsed to $10.

"It's not in OPEC's interest to see $100 oil," said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pa. "They know that it's the speculators that are the main driver in sending prices higher. At some point this market will implode, because this isn't sustainable."

Futures contracts show investors expect oil to be at $80 in March, and none of the Wall Street analysts tracked by Bloomberg predict $100 before the end of next year. Crude closed at $79.43 Monday on the New York Mercantile Exchange.

Oil, which has jumped 78 percent this year, is heading for the biggest annual gain since 1999. The appreciation coincided with a 5.4 percent increase in U.S. stockpiles to 335.9 million barrels. The furthest-dated Nymex crude contract, for delivery in December 2017, closed at $99.43 a barrel on Nov. 4 before retreating.

The number of outstanding options contracts to buy oil at $100 by March rose to 27,482 in October from 7,181 in September, and climbed another 1,609 to 29,091 by Nov. 5. The contracts cover more than 29 million barrels of crude.

Inventories are mounting as the Organization of Petroleum Exporting Countries produced 28.76 million barrels a day in October, up 80,000 from September and the highest in 10 months, according to Bloomberg estimates. Saudi Arabia has raised shipments in four of the past six months, the data show.

State-run Saudi Arabian Oil Co. will supply full contracted oil shipments to several refiners in Asia next month for the first time in more than a year, refinery officials said Monday.

"Listen to the Saudis," said Lawrence Eagles, the global head of commodities research at JPMorgan Chase & Co. in New York. "They have said they want prices at this level, and they have the ability to keep them here."

Saudi crude-oil production has risen to 8.15 million barrels a day after dropping to 7.86 million in February, the lowest level since 2002. By MARK SHENK Bloomberg News

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