Opec producers said yesterday they were prepared to raise oil output limits but admitted they had little left in their armoury to rein in $53-a-barrel crude.
Meeting tomorrow, the Organisation of the Petroleum Exporting Countries is struggling to contain prices because it is operating close to full crude production capacity and can do nothing to combat a global squeeze on transportation fuels.
Leading producer Saudi Arabia was joined by Nigeria and Indonesia in backing a proposal by Kuwait for an increase in supply limits of 500,000 bpd, two per cent.
But Saudi Oil Minister Ali al-Naimi said the group was already meeting global crude demand, blaming refinery bottlenecks for high fuel costs.
"You know and I know that what is driving the price is not supply - it's the lack of refining capacity worldwide," Mr Naimi told reporters.
"Everybody is concerned about middle distillates," he said of a shortage in refinery output of diesel, heating oil and jet fuel.
US light crude eased 11 cents yesterday to $53.43 a barrel and has averaged nearly $51 a barrel so far this year, up from a $41.47 average in 2004 and $30.99 on 2003.
Last year's Chinese-led demand boom took producers and refiners by surprise after years of slow investment in capacity across the upstream production and downstream refining industry sectors.
Saudi Arabia is ploughing $50 billion into rebuilding its cushion of spare production capacity and upgrading its export refineries. Iran, Opec's second biggest producer, said the group was already at full stretch, leaving it powerless to push down prices.
"Opec members are already pumping at full capacity and can do nothing about prices," said Iranian oil minister Bijan Zanganeh in Tehran.
"More than $50 to $55 for the long term it seems is not good for the world economy. It seems in the long term a very high price will probably have a bad effect on the world economy, and we prefer not to witness this situation, but I think Opec cannot do anything."
A 500,000-bpd increase in official Opec output limits, taking output for 10 members with quotas to 28 million barrels daily, is unlikely to make much difference to prices.
The group is already pumping close to 28 million so a formal production increase will merely rubber stamp existing output.
"We are already doing more than the ceiling. There might be a legitimisation of the overproduction," said Edmund Daukoru, Nigeria's presidential adviser on energy.
Saudi Arabia has some spare capacity but it is not of the lighter crude grades required by refiners to make transportation fuels.
"The market accepts that Opec is producing almost at capacity and there is very little it can actually do to bring down prices," said broker Rob Laughlin at Man Financial in London.