OPEC expects oil surplus and price fall once Venezuelan output returns

www.smh.com.au February 3 2003

Crude oil prices, which reached a two-year high in London last month, might drop in the second quarter because of excess supply, the president of OPEC said.

"If Venezuela's oil output recovers in the coming weeks, we could see 3 million barrels per day of oversupply in the second quarter," Abdullah bin Hamad al-Attiyah said in Abu Dhabi before an environmental conference.

The Organisation of Petroleum Exporting Countries would be unable to reduce prices now because of "political crisis" in Iraq, said Mr al-Attiyah, who is also the oil minister of Qatar.

Oil prices in New York have held above $US30 a barrel for six weeks, the longest period in two years. A $US5 to $US10 drop would ease pressure on economies in the US and Europe, where growth has slowed and oil demand has stagnated since 1999. The unemployment rate in the US, the world's largest oil consumer, has risen to 6 per cent. In Germany one in 10 workers is jobless.

OPEC agreed last month to increase quotas by 1.5 million barrels to 24.5 million barrels a day starting last Saturday. The move was intended to push prices below $US28 a barrel and allow some members to make up for a shortfall from Venezuela, where a two-month nationwide strike has crippled oil exports.

"Venezuela could reach 2.6 million barrels a day within weeks," Mr al-Attiyah said. "It looks like the strike in Venezuela is coming to an end."

OPEC might be forced to cut quotas when they meet on March 11 in Vienna, he said. "We will have to study the possibility of an oil surplus."

Demand for oil will drop by about 2.5 million barrels a day in the second quarter, compared with the first, Saudi oil minister Ali al-Naimi told reporters at a press briefing in Abu Dhabi. International inventory levels were on the low side, particularly in the US, he said.

Officials from Saudi Arabia, the top producer among OPEC countries, Qatar, Kuwait and the United Arab Emirates have said they can do nothing to lower oil from about a two-year high because the threat of war with Iraq is inflating prices.

"What more can they do," said Salim Shaban, deputy oil minister of Oman, the sixth-largest Middle East oil producer and a non-member nation that has cooperated with OPEC to bolster prices. "You could see oil prices fall by a third if the Iraq issue were solved tomorrow," he said.

Most OPEC states are pumping as much oil as they can to fill a gap caused by a nine-week strike in Venezuela.