More crude oil exploration urged

More crude oil exploration urged

Bruce Stanley, Associated Press, London

Demand for oil is growing at its fastest rate in eight years,
but the economic recovery could fizzle unless suppliers keep pace
by drilling new wells and producing fresh crude, the
International Energy Agency warned on Wednesday.

With oil prices reaching new 13-year highs, OPEC, which pumps
a third of the world's oil, announced plans for talks next week
to consider a Saudi proposal that the group raise its production
ceiling in a bid to cool the market.

In New York, June crude futures jumped 71 cents to close at
US$40.77. Oil futures contracts last traded above $40 a barrel in
the autumn of 1990 leading up to the Gulf War.

The growth in demand for crude continues to outstrip
expectations, the International Energy Agency said in its monthly
oil market report. Given China's thirst for imported oil and the
soaring demand for gasoline and jet fuel in industrialized
countries, the agency revised its 2004 demand forecast upward to
80.6 million barrels a day - an increase of 2.5 percent over last
year. World demand hasn't risen this fast since 1996, the agency
said.

The IEA is the energy watchdog for rich oil-importing
countries. Although it analyzes the supply and demand for crude,
it avoids trying to predict prices.

Reviewing the price surge of recent months, the Paris-based
agency said that geopolitical concerns in the Middle East,
bottlenecks in the U.S. gasoline market and an increase in
speculative buying of oil futures contracts have all had an
effect.

Most important, however, has been the stingy output from the
Organization of Petroleum Exporting Countries. By forcing
importers to run down their oil inventories, OPEC has been the
decisive factor in creating "a market on steroids," the IEA
argued.

The agency noted that higher demand for oil is a sign of a
rebounding world economy.

"But this welcome resurgence in economic activity brings to
the fore the issue of securing the necessary supplies to sustain
the recovery," it said. The IEA urged suppliers to boost
investment in exploration for oil and called on refiners to
increase their production capacity for gasoline and other refined
products.

"That's really a critical point," agreed Jim Placke of
Cambridge Energy Research Associates in Washington. "If you don't
start going out to explore for and produce new resources, (then)
three to five years from now when you need them they're not going
to be there."

Many OPEC members are already pumping all the crude they can
to cash in on current high prices. Saudi Arabia, OPEC's de facto
leader, is the only member with significant capacity to pump more
oil from existing fields, and Saudi Oil Minister Ali Naimi
proposed on Monday that the group consider raising its output
target by 6 percent to 25 million barrels a day.

Although Algerian Minister of Energy and Mines Chakib Khelil
argued against such an increase, his Kuwaiti counterpart, Sheik
Ahmed Fahd Al Ahmed Al Sabah, said on Wednesday that Kuwait would
raise production to its maximum capacity to try to nudge prices
lower. Al Sabah advised other OPEC members to do the same.

"The Organization seems to have been stung into making
reassuring noises," the IEA concluded.

As if to confirm this view, OPEC President Purnomo Yusgiantoro
announced on Wednesday that the group would hold informal talks
next week to consider the desirability of increasing its
production target as part of its "continuous commitment towards
market stability." He said that OPEC's representatives would meet
on the sidelines of the International Energy Forum, an industry
conference to be held May 22-24 in Amsterdam.

Purnomo added that OPEC pumped 2 million barrels above its
target in April.

"We have not discouraged our members from producing more
because we want to do everything we can to stabilize prices. That
is one of the cardinal objectives of our organization," he said
in a statement.

The IEA reported a similar level of quota-busting, but it
noted that Saudi Arabia and six other OPEC members actually
trimmed their production last month in a partial effort to comply
with their individual targets.

Output by non-OPEC producers also dipped slightly in April, as
some North Sea oil rigs interrupted their operations to undergo
maintenance and western Canada saw a seasonal decline in output.
Overall, world supply declined last month by 440,000 barrels a
day to an average of 81.5 million barrels, the IEA said.

However, Russia's production continued to rise, and the agency
predicted that non-OPEC supplies would grow by 350,000 barrels
through July.

On London's International Petroleum Exchange, June Brent blend
crude oil futures settled up 59 cents at $37.95 a barrel.

On the New York Mercantile Exchange, June gasoline futures hit
a new settlement record at $1.3735 a gallon, up 5.12 cents, or
3.9 percent, after touching an all-time high of $1.3750.

June heating oil futures settled up 2.34 cents to $1.0392 a
gallon and natural gas for June delivery gained 1.9 cents to
settle at $6.405 per 1,000 cubic feet.