OPEC Chief Cautious over Output Hike
OPEC Secretary General Alvaro Silva-Calderon remained cautious over the Organisation of Petroleum Exporting Countries’ plan to hike its oil output at an extraordinary meeting on Sunday. "Any larger increase or cut in output (than 500,000 barrels a day) has to be carefully evaluated within the prevailing circumstances," Silva-Calderon told the cartel’s OPECNA news agency in Vienna. In March 2000, OPEC agreed to a price band mechanism under which the cartel would raise output by 500,000 barrels per day if prices remain above the range of 22 to 28 dollars for more than 20 consecutive trading days. The mechanism also sets out that OPEC would cut its output by the same amount if prices fell below 22 dollars for 10 consecutive days. On Tuesday the price of OPEC’s reference basket of seven crude oils remained above 28 dollars for the 14th consecutive trading day. If prices continue at these levels, the 20th day will fall on January 15.
OPEC looks set to substantially hike its production at its extraordinary ministerial meeting in Vienna on Sunday, to respond to growing demand sparked by the general strike in Venezuela and the threat of war in Iraq. "It is a difficult situation we are in, since we are dealing with a market affected by a set of extraordinary circumstances that are beyond our control," Silva-Calderon said. Sources close to the cartel have said that Saudi Arabia, the world’s leading oil exporter at some 7.5 million barrels a day, is calling for a total output increase of 1.5 million barrels a day. The Saudi proposal is backed by Qatar, which currently holds the rotating OPEC presidency. The other nine member countries are in favour of a production hike of one million barrels a day, the sources said. OPEC’s current official output quota is set at 23 million barrels a day excluding Iraq.
Oil prices slid on Tuesday after OPEC announced it planned to hike its production levels in order to bring down prices, which had reached particularly high levels in recent weeks. In New York, reference light sweet crude for February delivery dropped by 98 cents a barrel to 31.08 dollars, while the OPEC reference basket of seven crude oils dropped 17 cents to 29.72 dollars. Meanwhile,US oil prices fell again on Wednesday, bringing losses so far this week to over $2 as major producers prepared to make a hefty injection of barrels into the market to compensate for the supply-sapping strike in Venezuela. US light crude dropped 10 cents to $30.98 a barrel, after diving $1.02 in New York on Tuesday and 98 cents a day earlier. Oil hit a two-year peak at $33.65 on December 30.
World crude oil prices have rallied $5 to $6 in the last two months on concerns the Venezuela strike would lead to a supply crunch in the United States. Venezuela supplies about 13 percent of US oil imports. Traders are also worried that the looming threat of war in Iraq could disrupt crude flows from other major producing nations in the Middle East and dent supplies further. Dealers said the additional volumes proposed by Saudi Arabia were larger than expected. They would come on top of official output limits of 23 million bpd agreed by OPEC in December. Most expect an agreement in the range of 1.0-1.5 million bpd, the volume Kuwait’s oil minister, Sheikh Ahmad al-Fahd al-Sabah, says is favoured. Sheikh Ahmad and his Iranian counterpart Bijan Zanganeh are expected to meet in Tehran on Saturday for talks focused on OPEC, a Kuwaiti official said on Wednesday. Another Kuwaiti official said Sheikh Ahmad had not answered OPEC headquarters on whether he would attend a possible emergency meeting on Sunday on a production hike. The Organisation of Petroleum Exporting Countries is considering an emergency meeting on January 12 to finalise the deal. Otherwise matters could be settled by telephone.