March 17 (Bloomberg) -- Crude oil rose to a record, surpassing $57 a barrel in New York, on concern OPEC can't pump enough oil to meet demand this year.
The Organization of Petroleum Exporting Countries raised its output target by 500,000 barrels a day yesterday to 27.5 million a day, a record for the 10 members restrained by quotas. The increase marks a change in OPEC strategy, according to Paul Horsnell, the head of energy research at Barclays Capital in London, because it will let inventories accumulate in the second quarter in preparation for surging use in the second half.
``It's an admission that they don't have any spare capacity left,'' said Simon Wardell, an analyst at Global Insight Inc. in London. ``To make sure that this isn't exposed, you need a big buffer. If they don't let stockpiles rise, they won't be able to cope with demand this year.''
Crude oil for April delivery rose to a record $57.05 a barrel on the New York Mercantile Exchange, the highest price in more than two decades of futures trading. It gained 54 cents, or 1 percent, to $57 at 9:54 a.m. London time, up 49 percent in the past year. Brent crude for May settlement reached a record $55.56 on London's International Petroleum Exchange and was up 54 cents at $55.42, up 37 percent this year.
``There is a lack of spare production, and this brings nervousness to the market,'' Rafael Ramirez, the oil minister for Venezuela, OPEC's third-largest crude producer, said in an interview today in Isfahan, Iran, where the group met yesterday. ``We cannot do much more, only take this kind of decision. OPEC can help influence prices, but there are other strong factors'' at work in the market.
Narrow Margin
OPEC, producer of about 40 percent of the world's oil, estimates that members have about 2 million barrels of capacity idle, leaving little margin should supplies be disrupted from Iraq, Nigeria, Venezuela or Russia. The group agreed yesterday to raise quotas for the fourth time in less than a year and said a similar increase may be made next month.
Led by China and the U.S., demand is expected to rise 2.2 percent this year, or 1.8 million barrels a day, to a record 84.3 million a day, according to the International Energy Agency, which advises industrialized nations on energy. That's the content of 42 supertankers being burned every day.
When personal income ``reaches $4,000 or $5,000 per year in countries like China and India, people start getting into that window of disposable income,'' said Robert Skinner, director of the Oxford Institute for Energy Studies, in Oxford England. ``They buy cars, they consume more electricity. There's a huge middle class emerging in these countries. That's something we have today that we didn't have in the 1970s.''
Surging Prices
Prices rose in 1974 after an oil embargo that followed the Arab-Israeli war and from 1979 through 1981 after Iran cut oil exports. The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department, or $75.71 in today's dollars.
For two decades, OPEC has boosted output when prices climbed too fast, ensuring enough oil was pumped to cover the world demand. It boosted production in 1991, when the Gulf War forced Iraq and Kuwait to stop pumping. It did the same when Iraqi output dwindled after the U.S.-led invasion of March 2003.
OPEC was created in Baghdad in 1960 with ``the common decision of producers to get their views across to the industrialized world, to be able to defend their long-term interests, but to cooperate when it's necessary,'' Alirio Parra, who was OPEC president and Venezuelan oil minister in 1992, said in an interview in London.
Saudi Capacity
More than three-fourths of OPEC's spare production capacity is held by Saudi Arabia, the world's largest oil exporter. It was a Saudi proposal that led OPEC to raise its quota yesterday.
Saudi Oil Minister Ali al-Naimi declined to comment yesterday on the record prices. ``The market sets the price,'' he told reporters in Isfahan and wouldn't comment further.
``Saudi Arabia is taking a long-term view because it wants to maintain its position as the swing producer and because of concern that high prices might start to have an impact on global economic growth,'' Wardell of Global Insight said. said. ``Other OPEC members are a bit unconvinced. The only thing they see is increasing stocks at the moment and they find that worrying.''
The five founding members of OPEC are Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Six members joined later: Qatar, Indonesia, Libya, the United Arab Emirates, Algeria and Nigeria. Ecuador and Gabon left the organization in the 1990s.
``OPEC has done all it can,'' said Herman Franssen, former chief economist at the International Energy Agency and now president of International Energy Associates Inc. in Chevy Chase, Maryland. ``OPEC is now at capacity, and adding new capacity takes time.'' He said it may be 2007 before the group can boost supply enough to regain some control of prices.
U.S. President George W. Bush yesterday urged Congress to open Alaska's Arctic National Wildlife Refuge to oil drilling, and a plan to do so passed the Senate 51 to 49 later in the day.
