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OPEC too late to douse blazing oil price
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Unwilling or unable, OPEC producers meeting on Sunday will fail to remedy the shortages that are likely to keep crude prices aflame this winter. Fearful of a premature end to one of the most prosperous periods in the cartel's history, oil ministers in Vienna are expected to adjust production quotas only modestly higher. Leading OPEC power Saudi Arabia has softened up fellow producers for more than the standard 500,000 barrels daily that would come anyway under an automatic cartel price mechanism. Unless Riyadh is preparing to unveil a surprise, dealers can expect an addition of no more than 700,000-800,000 bpd, a three percent increment over limits now of 25.4 million "They have to raise supply by more than 500,000 bpd. The market needs a strong message," said Mehdi Varzi of Dresdner Kleinwort Benson. The Organisation of the Petroleum Exporting Countries is under severe pressure from consuming nations to do something, anything to ease fuel bills. Warnings come daily from the European Union, the United States or Japan that rising energy costs are stoking inflation. Some see recession around the corner. But OPEC appears to have lost control over the price rally it sparked with production curbs two years ago. Crude prices now at a decade-high of more than $33 a barrel mean a winter of discontent for petroleum consumers looks unavoidable. "It's probably too late. I think it's out of OPEC's hands now. Prices are going to stay high this winter," said Gary Ross, chief executive of leading U.S. energy consultancy PIRA. "OPEC has perpetuated this low inventory situation and now everyone's panicking." REFINERS PERPETUATE LOW INVENTORIES OPEC already has lifted output twice this year, by a combined 2.4 million bpd, easing limits from two years ago. Emboldened by early success in lifting prices from a 22-year low of less than $10, the cartel argued it could micromanage markets into a soft landing. But market observers say OPEC failed to open the spigots quickly enough this year, allowing growth in demand to empty worldwide stocks of crude and petroleum products. Today, including supply from Iraq, not bound by a quota, the group is supplying as much as at any time since 1980 -- some 29 million of the world's production of 75 million barrels a day. There is strong evidence that the oil industry, for sound commercial reasons, also has failed its customers. High prices, particularly in a market which values prompt oil at a premium, mean refiners prefer to keep inventories as low as possible -- operating hand-to-mouth. "There is a refinery bottleneck and if customers don't want crude the Saudis can't force-feed them," said Ross.
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