OPEC assures supply will meet oil demand. Oil Still Flows
www.nytimes.com By NEELA BANERJEE
VIENNA -- Facing the looming possibility of war in Iraq and the continued shortfall of oil exports from Venezuela, the Organization of the Petroleum Exporting Countries is expected to announce at its meeting here today that it will continue to supply as much oil as the markets need, essentially an affirmation of what it has been doing for months now, although with limited success. Advertisement
Most of the 10 voting OPEC members are now pumping as much oil as they can, but prices have stayed stubbornly high. In New York, crude oil for April delivery fell 51 cents yesterday, to $37.27 a barrel.
But even if OPEC does nothing today, analysts here said, the steps it has taken so far amount to an important political and economic victory. They noted that prices would have been even higher had OPEC not increased output to compensate for the loss of Venezuelan oil production and then to calm a market jittery about a possible halt in Iraqi exports, in the case of war. Recently, consuming regions, led by the United States and European countries, gave the cartel a vote of confidence by announcing that they would allow OPEC to make up for any possible shortfall in supplies if war broke out before they released oil from their strategic stockpiles.
At a time when many in the United States are calling for greater imports of oil from outside the Middle East, OPEC's pre-emptive action has shown that the Persian Gulf states, particularly Saudi Arabia, are the only ones with the spare production capacity that can be called on to dampen prices, analysts said.
"This is Saudi Arabia's crowning glory in its short-term relations with the United States," said Raad Alkadiri, a director at PFC Energy, a Washington consulting group. "They have shown that they have the willingness to keep spare capacity that becomes of enormous strategic importance to Western markets. Despite the stresses and strains in their relations with the United States, they have shown that they are willing to act to keep prices under control."
Yesterday, on the eve of the official meeting, members debated publicly about the need to increase production officially to the maximum by abrogating production quotas, with Iran insisting there was no need to do so. But analysts said that talk of quotas was only a formality, given that OPEC has pledged to provide the market with the oil it needs to stabilize prices. That may involve producing full-tilt, depending on the progress of a possible war — something the cartel has never done before, those analysts said.
"This is the first time the upper limits of their production band will be tested," said Yasser Elguindi, a managing director at Medley Global Advisors, a New York consulting group. "And we don't know exactly what the outcome might be. With everyone going flat-out, they may be able to squeeze 50,000 barrels here or there, but it will be at the margins."
Analysts say that the only OPEC members with any room to produce more oil are Saudi Arabia, and, to a far lesser extent, Kuwait and the United Arab Emirates. OPEC members do not disclose their production statistics, but analysts think that Saudi Arabia is already producing 9.2 million to 9.5 million barrels a day, or about 1.5 million barrels more than its official quota. If need be, the Saudis could increase output by an additional million barrels a day over several weeks, the analysts said.
Still, it takes about six weeks for oil from the Persian Gulf to reach the United States, which may explain why inventories of crude oil and petroleum products have remained low. That trend, in turn, has helped keep prices high. But demand for oil traditionally falls in the spring. While analysts said they thought the persistent cold weather in the northern United States might buoy oil prices, they nonetheless expect demand to slacken somewhat in the weeks to come, which might help curb the rise in prices.
Exports of oil from Venezuela have resumed and are now 1.5 million to 2 million barrels a day, analysts estimated, which is still less than the 2.5 million barrels the country shipped before a general strike began in December against the government of President Hugo Chávez. But analysts warned that Venezuela would remain a far from reliable exporter until its domestic political disputes are resolved. Moreover, the shutdown of the oil fields at the beginning of the strike may have led to a permanent loss of up to 500,000 barrels of production capacity, analysts said, because some of the country's oil production is hard to revive once it has been shut in.
"The reality is that Venezuela is not going to come back to prestrike levels," Mr. Elguindi said. "Its production will probably be erratic. I think people underestimated the impact of its shutdown on markets, and that impact could last through the end of the year."
Most analysts think that OPEC, at maximum capacity, could make up for the inconsistent Venezuelan production and the loss of about two million barrels of Iraqi exports, legal and otherwise. But that leaves no margin for anything else that might go wrong, they warned. What if coming elections in oil-producing Nigeria touched off unrest? What if insurance on oil tankers to Kuwait rose to such prohibitively expensive levels that loading of some oil there stopped for a time? Or Kuwait itself shut down production to the north, near the border with Iraq?
Obaid bin Saif al-Nasseri, the oil minister for the United Arab Emirates, told reporters here yesterday that it would be "very difficult" for OPEC to make up for a halt in Iraqi oil exports and a simultaneous halt of oil production in northern Kuwait.
If OPEC cannot cover for a shortfall in the market, then the United States and other consuming countries would probably release oil from their strategic stockpiles. The United States has about 600 million barrels of oil in its Strategic Petroleum Reserve, and the Bush administration has come under great pressure to release some of it to rein in prices, which it has flatly refused to do.
"From the United States' perspective, they want oil producers to supply as much as they can, because once the government taps the reserve, it can't go to it again if things get even worse," Mr. Elguindi said. "It becomes the measure of last resort for the country."