Oil Strong as Kuwait Delays Capacity Hike

Thu Nov 4, 2004

LONDON (Reuters) - Oil prices held near $51 a barrel on Thursday as OPEC member Kuwait delayed a planned increase in its production, potentially prolonging a global shortage of spare supply capacity that has sent prices to record highs.

U.S. light crude (CLc1: Quote, Profile, Research) eased three cents to $50.85 a barrel. London Brent (LCOc1: Quote, Profile, Research) was down eight cents at $47.48.

President Bush's election victory pushed prices up $1 on Wednesday, ending a week-long downturn that had pulled prices down more than $5 from record highs.

A second Bush administration will likely continue filling U.S. emergency oil stockpiles despite high prices and could stoke nerves about U.S. policy in the Middle East, particularly OPEC's second-biggest producer Iran.

Prices held strong as a Kuwaiti oil official said the major Gulf OPEC producer Kuwait has delayed a 200,000 barrels per day (bpd) increase in its crude oil production capacity until late December or early January.

The delay is a blow to the OPEC cartel's efforts to alleviate a lack of spare production capacity, which has helped drive oil prices to record highs.

OPEC has lifted production above 30 million bpd to meet booming oil demand -- leaving it about 1.5 million bpd of spare capacity, all in top world exporter Saudi Arabia.

Fellow OPEC member Venezuela warned that oil prices have yet to peak and warned that U.S. involvement in the Middle East could make prices more volatile.

"Oil prices have not yet reached their maximum. We see the market as unstable and higher," Venezuela's Energy Minister Rafael Ramirez said on the sidelines of a summit of Latin American leaders in Rio de Janeiro.

"U.S. policy in the Middle East does not help stability in the petroleum market. It creates instability," Ramirez said.

OPEC's supply surge has helped rebuild U.S. crude stocks, which have risen 10 million barrels in the last two weeks.

This has helped assuage supply concerns that have plagued the market since September's Hurricane Ivan, which knocked out more than a quarter U.S. Gulf of Mexico production for weeks.

"Oil inventories should rise over the next six to nine months and this should eventually ease the extreme tightness in today's oil markets," said Adam Sieminski of Deutsche Bank in a report.

"The main forces that we believe will cause prices to fall include weakening global oil demand, rising non-OPEC supply, and growth in both OPEC production and capacity to produce."

Even so seasonal maintenance at U.S. refineries has hampered the usual autumn build of distillates, including heating oil for winter.

Heating oil inventories are 16 percent below this time last year, although many analysts expect them to be replenished quickly as refiners ramp up throughput following maintenance closures.

Forecasters said on Wednesday heating fuel demand in the eastern United States were likely to be higher than last year due to a colder-than-normal winter from November to March.

U.S. demand for distillates, which include diesel and jet fuel as well as heating oil, is already running eight percent above year-ago levels.

In Japan, another major heating fuel user, kerosene supplies are 11.5 percent below this time last year, industry data released on Thursday show.

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