UPDATE: Next OPEC Step Unclear As Iraq Crisis Continues
sg.biz.yahoo.com Tuesday March 11, 5:56 AM By Adam Smallman Of DOW JONES NEWSWIRES (This updates a story from 1253 GMT with additional comments from ministers and further diplomacy news.)
VIENNA (Dow Jones)--There is no consensus among OPEC ministers gathering in Vienna ahead of Tuesday's policy meeting, because there appears to be no big idea on the table.
Ali Naimi, the oil minister for the Organization of Petroleum Exporting Countries' de facto leader Saudi Arabia, was tightlipped on arrival, in sharp contrast to the two meetings since December, at which members signed off on output hikes.
That increased production was intended to cool prices, but it failed.
This time, the world seems a little more complex. A conflict in Iraq may now only be a week away, OPEC's spare capacity - normally used to assuage oil price fears - is wafer thin and ministers fear an oil glut within weeks that could see prices tank.
OPEC Secretary General Alvaro Silva and oil ministers from Iran, Algeria and Venezuela have also dismissed talk that a suspension of the group's output ceiling, currently set at 24.5 million barrels a day divided among 10 OPEC members, excluding Iraq, might make it onto the agenda of the meeting.
It was left to Algeria's Oil Minister Chakib Khelil to give shape to the oil price fears sliding to the front of delegates' minds, even if OPEC's public front may be to issue soothing words over the security of crude flows on the cusp of war.
In an interview with Dow Jones Newswires, Khelil - who thinks OPEC should leave things unchanged at Tuesday's meeting - said oil prices will rise on the start of war, though he believes there's a possibility of a collapse to below $22/bbl thereafter.
Concerns "might last a week or two weeks, but the prices will go down even without...the use of (strategic) stockpiles," Khelil said.
With OPEC's failure to manage prices, the market is fixated on government-held oil stockpiles and whether they will be released to cover any disruption to oil flows.
A man with a hand on the taps of those stocks is U.S. Energy Secretary Spencer Abraham, due in Vienna late Monday. He's likely to meet with some OPEC ministers, though he's ostensibly here to attend an International Atomic Energy Agency meeting.
Doubts Growing Over Spare Capacity
With a deadline for OPEC member Iraq to comply fully on weapons inspections or risk war just a week away, there are serious doubts over the amount of spare capacity OPEC can bring to bear.
United Arab Emirates Oil Minister Obaid bin Saif al-Nasseri said most members of OPEC are currently producing at maximum capacity.
Al-Nasseri added the UAE, previously considered to be one of the few members with significant spare capacity, actually has a "limited" ability to produce more and that additional capacity from Saudi Arabia will take "some time" to be readied for export - by which time the seasonal fall in consumption may have happened and a clearer picture of the progress of war in Iraq emerged.
OPEC President Abdullah bin Hamad al-Attiyah said "around 3 million barrels a day," could be added to the market to ease supply concerns.
Mike Fitzpatrick, energy analyst at New York-based Fimat USA Inc., said: "I'm guessing they won't be adjusting quotas, because of the (opinion on the) Arab street." But additional Saudi oil would help take the sting out of a price spike. Fitzpatrick also predicts a release of IEA reserves.
Arab newspaper al Hayat reported Monday that a Gulf source said a proposal to suspend production quotas will be submitted to OPEC members Tuesday, "but if it faces strong opposition from some countries it will be delayed until there is an actual halt of supply."
But Iran's Oil Minister Bijan Namdar Zangeneh said OPEC shouldn't adopt any decision that would look as if it supported a U.S. invasion of Iraq, Iran's state-run IRNA news agency reported.
The 11 members of OPEC account for a third of global oil production and the world would normally look to the group to keep sufficient oil flowing in the event of war in Iraq.
The price of the April Brent futures contract on London's International Petroleum Exchange was $33.69/bbl, down 41 cents from Friday's close. The April Nymex contract was down 51 cents at $37.27/bbl.
International diplomacy continued Monday. The split within the U.N. Security Council has widened, with Russian Foreign Minster Igor Ivanov warning Monday that Russia will vote against the current U.S. and U.K. resolution that gives Iraqi President Saddam Hussein a March 17 deadline to disarm. French President Jacques Chirac also said France would veto it.
France also lobbied undecided council members - Guinea, Angola and Cameroon - to vote against the second resolution that may trigger conflict.
U.K. Prime Minister Tony Blair also faced internal dissent when a senior member of his government, International Development Secretary Clare Short, said she would quit if the U.K. goes to war without U.N. backing. Blair, she said, was being deeply reckless.
In Vienna, Tuesday begins with the arrival of the Iranian oil minister, to be followed by a breakfast meeting between OPEC and non-OPEC countries such as Angola, Mexico, Russia and Egypt.
OPEC will meet in the afternoon to decide on its policy.
Meanwhile, U.S. Energy Secretary Abraham will speak at an IAEA conference Tuesday morning and will hold a press conference around 1300 GMT.
-By Adam Smallman, Dow Jones Newswires; 44-20-7842-9343; adam.smallman@dowjones.com