Oil Prices Rise on OPEC Supply Concerns

June 9, 2011
Analyst: In the long term, 'the market is going to be well-supplied.'

Oil prices rose on Thursday, owing to tight supply concerns after OPEC decided to maintain its output ceiling ahead of an expected pickup in energy demand later in the year, analysts said.

Brent North Sea crude for delivery in July rose 27 cents to $118.12 a barrel in early London deals. New York's main contract, light sweet crude for July, gained 49 cents to $101.23 a barrel. "Crude is rallying because of OPEC ... failing to reach an agreement on higher output levels," Victor Shum, a Singapore-based analyst at Purvin and Gertz international energy consultancy, told AFP. The Vienna meeting on Wednesday resulted in OPEC's official output target remaining at 24.84 million barrels per day (mbpd), where it has stood since January 2009. That announcement sent oil prices rocketing on Wednesday. Traders had speculated that the 12-nation Organization of the Petroleum Exporting Countries (OPEC) would boost production quotas to help cool oil prices and in turn boost economic recovery. The International Energy Agency said it was "disappointed" by OPEC's decision and urged producers to pump more anyway to avoid higher oil prices. The IEA, which represents the interests of industrialized nations, estimates that actual OPEC production stood at 26.15 mbpd in April, giving an overshoot of about 1.3 mbpd. But even such extra output is not seen as sufficient to meet future demand. OPEC's policy announcement meanwhile exposed deep divisions within the cartel. Kuwait, Saudi Arabia, Qatar and the United Arab Emirates had called for a boost of 1.5 million barrels to the ceiling, but fellow members rejected the idea. Analyst Jason Schenker, at U.S.-based Prestige Economics, said that the decision would not change a great deal. "I think fundamentally it's not going to change the supply situation. I think (OPEC's main producer) Saudi Arabia is going to produce additional oil regardless," Schenker said. "At the end of the day, for pricing: In the short-term this may be interpreted as bullish, but the truth is that the market is going to be well-supplied." Shum added: "In the long term, the oil market is fundamentally bullish with demand growth going forward, and so the OPEC group is going to have to supply more output. "Supply-side worries including conflict in Libya ... are supporters of oil-demand growth expected in the remainder of the year," the analyst said. Copyright Agence France-Presse, 2011
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