IMF: Capacity warning for oil producers

The International Monetary Fund warned oil ministers on Monday that their expansion in capacity was failing to keep up with surging demand, leading to instability in the market.

John Lipsky, the IMF’s deputy director, told a meeting in Rome: “While oil demand has remained robust, the supply side response to rising prices has been disappointing.

“As buffers have dwindled, the oil market has become highly sensitive to news of supply disruptions or geopolitical events.”
Mr Lipsky said the spare capacity held by Opec, the oil producers’ cartel, was about half of its 1996-2007 average, or one quarter of its 2002 level, and was expected to remain limited for some time.

“Against this background, increased investment in the oil sector has a crucial role to play in improving the supply-demand balance and bringing greater stability to the market,” he told the International Energy Forum, comprising energy ministers and delegates of the world’s biggest oil producing and consuming nations.

Supply projections had been revised downwards, particularly for producers outside the 13 Opec nations, including Mexico, Russia, and the UK, he said. That, said analysts, left the biggest producers, such as Saudi Arabia, with a greater role in increasing capacity.

However, Abdullah al-Badri, Opec’s secretarygeneral, revealed that rising costs could delay some of the cartel’s expansion plans for a year or two.

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