MercoPress. South Atlantic News Agency

Oil hits new record in spite of OPEC announcement

Texas crude reached a new record high of 56,40 US dollars per barrel Wednesday in spite of OPEC having announced a 2% increase in oil supplies equivalent to an additional 500,000 barrels to the 27,65 million bpd it's currently pumping.

The agreement reached in Iran also gives Sheikh-Ahmad, OPEC president, the power to trigger another 500,000 bpd increase later in the second quarter should prices remain high. The cartel also adopted a new reference price for its oil, setting up a basket containing eleven grades of crude produced by the group.

However the release Wednesday by the US Department of Energy and the American Petroleum Institute, API, of US crude reserve estimates, but particularly gasoline reserves which actually dropped 2,9 million barrels, sent market prices to new records.

According to the US Energy Department US crude reserves increased 3,5 million and now stand at 305,90 million barrels. But gasoline reserves dropped 2,9 million to 221,4 million barrels. For API the decrease was even larger 4,55 million barrels reaching 219,04 million. Distilled products reserves dropped 1,9 million to 107,3 million and heating oil reserves 2,4 million and now stand at 37 million barrels.

With the coming spring and holiday season markets fear possible gasoline shortages.

Ali Naimi Saudi Arabia Oil Minister from Iran said that oil prices should be between 40 and 50 US dollars per barrel to protect global economic growth, adding that the current 55 US dollars is "too high".

Saudi Arabia further announced it was ready to boost its output next month from the current 9,5 million bpd. Kuwait also said it was boosting April output from its existing production of 2,5 million bpd.

"We want prices to be between 40 and 50 US dollars a barrel", emphasized Mr Naimi.

Apparently OPEC is concerned that if it fails to up supplies this coming spring the global oil market could face a tighter supply and demand balance in the second half of 2005.

The move signals a significant change in OPEC policy which last January was looking at a cut in production quotas for this meeting in Iran, the first to be held in Iran since the 1979 Islamic revolution. OPEC traditionally looks to cut supplies in the second quarter, a period when demand eases as winter heating fuel consumption drops.

An OPEC delegate admitted that the normal second quarter decline in global oil consumption may have changed with the emergence of China as a significant client, but anyhow there should be a surge in oil inventories in the world's main consuming countries over the coming spring period. Oil inventories in developed countries is about 51 days of forward demand cover, which OPEC closely monitors, but this time they seem willing to allow further inventory building so that there is an extra supply cushion when demand picks up in the second half of 2005.

Washington based energy analysts also argue that since crude demand this year increased an estimated 1,8 million bpd, this has had a direct impact in the already tight global refinery system which has become the soft spot in the production line.