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.