OPEC to keep output at current levels

www.abs-cbnnews.com By NEELA BANERJEE The New York Times

VIENNA, Austria - The Organization of the Petroleum Exporting Countries (OPEC) decided at its meeting here Tuesday to maintain oil output at current levels, indicating it could do little else to cope with the uncertain impact a possible war in Iraq could have upon supplies from the Persian Gulf and global demand.

At its last meeting in January, OPEC raised production levels to 24.5 million barrels a day. But industry analysts think OPEC is producing more than that, with nearly all countries, except for Saudi Arabia, pumping at maximum capacity to calm a market shaken the last few months by export shortages from Venezuela and jitters over war.

The president of OPEC, Abdullah bin Hamad al Attiyah of Qatar, acknowledged that although the 10 voting OPEC members were taking a wait-and-see approach, the group was prepared to act quickly to produce even more oil within weeks to prevent supply shortfalls and steep jumps in prices.

"We will closely monitor market developments,” Attiyah said at a news conference after the formal meeting, “and take prompt and appropriate action as and when the need arises.”

Opec does not disclose its actual production, and Attiyah and others would say only that the group’s excess production capacity is 2 million to 4 million barrels a day above the official quota. It is unclear how much of that has already been tapped, though most industry analysts estimated that perhaps only a million barrels a day of spare capacity remained within OPEC, nearly all of it in Saudi Arabia. There is negligible spare capacity outside OPEC, analysts said.

Opec scheduled an extraordinary meeting for June 11, to be in Doha, Qatar, rather than at its Vienna headquarters. But Attiyah said that if war in Iraq touched off an emergency in oil markets before June, OPEC members would confer by telephone or convene another meeting.

Right now, OPEC's most obvious challenge is an oil price that is so high that it could cripple the economy and weaken demand. Crude oil for April delivery closed at $36.72 a barrel on the New York Mercantile Exchange, an increase of 42 percent from four months ago, when the general strike in Venezuela began and its oil exports were suspended.

Attiyah said that while OPEC was doing all it could to rein in high prices, the trend was essentially out of the group’s control. He and other oil ministers said there was enough oil on the market, but that prices were buoyed by fears of war, which added a premium to the price of oil that OPEC members have variously estimated as $5 to $8 a barrel, Attiyah said.

"The price today is being driven more by psychological forces,” he said. “I wish we had the power to freeze prices at $25 but it is out of our hands.”

Yet industry analysts explained that OPEC was now reaping a volatility in oil prices born of its aggressive cuts in output throughout 2002. “Prices are driven by fundamentals that were created over a 12-month period,” one senior oil trader who insisted on anonymity said, explaining that low commercial stocks of oil and petroleum products in the United States were a result of OPEC's export reductions last year.

"It’s very good to have a management system to bolster prices, but it can get out of hand, and it did get out of hand,” the trader said.

If prices are slipping beyond OPEC's control, the only other way to halt an upward spiral would be for Europe, Japan and the United States to release oil from their stockpiles, which together total about 1 billion barrels. But OPEC and the United States both indicated Tuesday that such a decision remained distant and would be made to address an oil shortage, not a run-up in prices.

US Energy Secretary Spencer Abraham, who was in Vienna this week to talk to officials at the International Atomic Energy Agency, met with the Saudi Oil Minister Ali al-Naimi late Tuesday and later praised OPEC for its promise to meet shortfalls in supply.

"If OPEC would cover any shortage, we would welcome that,” Bloomberg News reported him saying. “We will only draw on the Strategic Petroleum Reserve if there is a severe supply disruption.”

While prices have remained stubbornly high despite OPEC's efforts, the group fears that they could fall rapidly and far too steeply, depending upon what happens in Iraq. And OPEC must be ready for that possibility as well, its members said. If a war in Iraq is brief, there is little damage to its oil sites and only a short suspension of its exports, the nervousness in the oil markets could fade and prices could decline.

Some members worry that such a decrease could be accelerated if demand for oil falls by about two million barrels a day in the second quarter, as has historically occurred. But OPEC has little choice but to wait to react to such a trend, rather than try and head it off.

"There is no doubt that demand in the second quarter will fall,” said Chakib Khelil, Algeria’s minister of energy. “In a normal situation, we would lower supply. But this isn’t a normal situation.”

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