NY Times: Shrinking Oil Inventory Puts Pressure on OPEC

["Mazine Kessaissia" <mazine.kessaissia@mail.utexas.edu>]

The International Energy Agency, an adviser to 26 nations on oil policy,
said today that crude oil inventories were "uncomfortably low," indicating
that OPEC needed to increase production to prevent a jump in prices.

Crude oil inventories in July fell below the level from a year earlier,
while oil demand in the fourth quarter will rise 60 percent from last year's
level, the agency said. OPEC meets next Thursday to discuss whether to raise
output for the first time in two years.
Oil prices have risen 50 percent this year in New York, topping $30 a barrel
yesterday, in part as speculation grew about an attack on Iraq that would
disrupt supply. Kuwait, Venezuela and Iran are among members of the
Organization of the Petroleum Exporting Countries that object to pumping
more oil for now.

"OPEC needs to raise production to keep the market comfortably supplied,"
said Steve Turner, an analyst at Commerzbank Securities, who expects an
increase in quotas of one million barrels a day. "Stocks are not high at the
moment."

The agency maintained its forecast for oil demand to rise by 1.1 million
barrels a day in 2002, more than five times the pace expected this year,
citing signs of a recovery in fuel use. That would be in line with growth
seen in the 1990's.

In July, demand in France grew about 3.5 percent, rebounding from five
months of decline, and consumption in Korea, the fourth-largest oil
importer, jumped 5.6 percent, reversing two months of contraction, the
agency said.

"If there's not more crude in the market, stocks will continue to decline
and there will be upward pressure on prices," said Klaus Rehaag, editor of
the agency's monthly oil market report.

In the fourth quarter, when oil demand peaks because of the Northern
Hemisphere winter, the agency expects consumption to rise by 1.6 million
barrels a day from the previous three months.

The agency, which was set up in 1974 to represent the interests of
industrialized countries after the Arab oil embargo of 1973, compared the
present trend in oil inventories to that of 1999, when a decline caused
crude prices to surge to more than $30 a barrel the next year.

"Producers debate whether or not to increase quotas," the report said. "The
important issue is to recognize that crude stocks are uncomfortably low."

Crude inventories in the Organization for Economic Cooperation and
Development countries in July dropped by 25 million barrels, to 895 million,
leaving them 7 million barrels lower than a year ago, the agency said.

OPEC reduced production quotas to the lowest in 11 years starting Jan. 1 to
support prices.

World oil production fell last month, in part because of a drop in output
from Iraq, which is not bound by OPEC quotas because the United Nations
controls its exports.