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Q&A: Oil prices hit record highs


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FACT BOX
GLOBAL OIL BALANCE
(millions of barrels per day)
Demand, May 2004: 80.6
Supply, May 2004: 81.5
Growth over 2003: 2.0
Source: International Energy Agency, May 2004
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Organization of Petroleum Exporting Countries (OPEC)
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(CNN) -- The Organization of Petroleum Exporting Countries (OPEC) meets Thursday in Beirut to consider raising production to help stem the surge in oil prices.

Saudi Arabia -- the world's largest oil producer -- will ask other OPEC members to raise the cartel's output ceiling by 11 percent, or 2.5 million barrels a day. (Full story)

The OPEC meeting comes amid growing concerns for the safety of oil workers and production facilities in Saudi Arabia and other Arab countries after deadly attacks in the Saudi oil city of Khobar last weekend.(Full story)

Q: What countries belong to OPEC?

A: The current members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Q: How important are Arab countries to the global oil markets?

A: Saudi Arabia has known oil reserves of 261 billion barrels, about a quarter of all the petroleum that is suitable for production in the world.

As a whole, Arab countries have reserves of 700 billion barrels, about 60 percent of the global total.

Saudi Arabia produces 8 million barrels a day, or 10 percent of global output, while Arab countries as a whole account for 21 million barrels a day, or 26 percent of global output.

The capacity of the Arab world is expected to rise to 40-45 million a day by 2025.

Q: Why have oil prices shot up so high?

A: OPEC has set a range of $22-28 a barrel. Instead, prices have touched $42 a barrel in New York and surpassed $38 in London.

Ali al-Naimi, the Saudi oil minister, says the OPEC range has not been kept because of market pressures outside the control of the cartel.

These factors include increased production levels by countries outside of OPEC and rising demand for oil and gas in major markets -- such as the United States, China and Japan -- caused by economic growth, as well as higher demand heating fuel due to cold weather in winter months and increased car use during summer months.

Still, many observers believe the price of oil has more to do with politics and the terror attacks than it does with supply and demand.

Q: Will a decision by OPEC to raise output have a major impact on oil prices?

A: Oil ministers will attempt to send a psychological message to the market by raising its official output ceiling. But the effect of that increase on actual capacity may not be substantial.

The real question is -- will OPEC raise quota capacity in real terms or approve the Saudi increase and stick with the currrent practice of over-producing? The cartel is already producing about 2 million barrels a day above its official ceiling of 23.5 million, and only Saudi Arabia has much spare capacity left.

Q: What impact has the weekend attacks in Saudi Arabia had on the country's oil industry?

A: Naimi, the Saudi oil minister, says the terror attack did not affect its oil and gas production, and has so far prompted only 10 foreigners to flee Saudi Arabia.

"These incidents do not affect the kingdom and do not affect the production of its oil or gas production," he said Wednesday. Saudi authorities and oil companies operating in Saudi Arabia have bolstered security following the weekend violence.

Q: Are fears of future terror attacks justified?

A: There is fear that terrorists are targeting Saudi oil installations. So far, the attacks have focused on so-called "soft" targets in the oil sector -- the workers themselves rather than the facilities.

But some analysts are concerned that if the attackers are going after workers then the actual facilities might be the next target. Any destruction of oil facilities in the Gulf would have a huge impact on global supplies and prices, analysts say.

Q: Where are pricing going from here?

A: On strictly a supply and demand basis, many analysts believe the price should be around the $35 a barrel level, but security concerns could keep prices a lot higher, just below $40.


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