New York, March 7 (Bloomberg)-- Crude oil rose almost 2 percent, close to $33 a barrel, on concerns that any increases in supply from the Organization of Petroleum Exporting Countries next month will fall short of what's needed to avoid shortages.
Even after their production cuts led to a tripling of prices since December 1998, OPEC members are divided about whether to pump more when their agreement on output limits expires March 31. Oil could fetch $35 if OPEC fails to raise production before the fourth quarter, the U.S. Energy Department said."Supplies are tight, and the market is saying we don't think OPEC will boost production enough," said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis.
Crude oil for April delivery rose as much as 57 cents, or 1.8 percent, to $32.75 a barrel on the New York Mercantile Exchange, the highest price since January 1991, during the Gulf War. The contract recently was at $32.68, up 50 cents.
In London, Brent crude oil for April settlement surpassed $30 a barrel on the International Petroleum Exchange for the first time since January 1991. The contract rose as much as 63 cents, or 2.1 percent, to $30.26 a barrel and recently fetched $30.18, up 55 cents.
Production cuts have sent U.S. oil inventories close to their lowest level in 23 years, and gasoline prices at the pump are the highest on record even before the summer driving season.
Oil Shortage
Oil exporters need to boost output as soon as possible to stem a decline in crude inventories and avoid damaging economic growth, according to the International Energy Agency, an energy watchdog for 23 industrialized nations.
The Paris-based IEA, which was created in the wake of the oil shocks of the 1970s, warned last month that rising crude prices and declining inventories will boost inflation and crimp economic growth, particularly in developing countries.
"The world needs more OPEC oil and needs it now," Robert Priddle, the IEA's executive director, said a conference in Abu Dhabi today. "Industry oil stocks worldwide ended 1999 at their lowest level for 10 years. They urgently need rebuilding."
OPEC is scheduled to meet March 27 to discuss extending the cutbacks that led to a surge in prices. Still, the group appears divided on whether to pump more oil or keep its current limits.
The most vocal opponents to higher OPEC output quotas, such as Iran, argue that additional barrels would flow in April just as a seasonal decline caused the world to consume as much as 3 million barrels a day less.
The IEA, which Friday releases its latest oil market report, expects demand to rise by 1.8 million barrels a day this year, or 2.4 percent.
Saudi Arabia and Iran, the two biggest OPEC oil producers and longtime rivals, will meet tomorrow in a bid to settle whether the 11-nation group should boost output next month.
Iran's oil minister, Bijan Namdar Zanganeh, yesterday said there was no need to raise production in April because of an expected decline in world demand in the second quarter.
With OPEC set to vote at its March 27 summit in Vienna, ministers are striving to settle their differences. Analysts expect Iran and other price hawks will ultimately consent to higher quotas.
"They'll capitulate, but for now they'll make enough of a ruckus to keep prices high," said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. "$35 is not out of the question."