Crude prices spike above US$56 despite increase in production by OPEC

17-Jun-05

The Organisation of the Petroleum Exporting Countries agreed to raise its formal production quotas by 500,000 bpd to 28 million bpd, but was unable to prevent prices from rising above US$56 a barrel. Even though producers are producing oil at their full capacity little hope has been shown for pushing prices below the US$50 a barrel mark. Prices seem to be rising not because the supply of oil is low, but because there are bottlenecks on the refining side that seem to be squeezing global petroleum product supplies. US crude was US$56.50 a barrel yesterday, is now heading towards an early April's all-time high of about US$58.20. Levels of less than US$50 will have to be maintained in order to sustain the world economic growth that fuels oil demand. Demand will definitely pick up as usual in the last quarter of the year, during the winter. Demands on OPEC are likely to increase to 30.5-31million bpd then, triggering an increase in production. OPEC is pumping nearly 30 million bpd, which includes Iraq that is exempted from a quota and is foreseen to hit 86.4 million bpd in the fourth quarter from 82.5 million bpd in the second quarter.