OPEC chief calls meet to address oil glut

Tuesday, April 8, 2003 8:50:0 p.m By NEELA BANERJEE <a href=www.abs-cbnnews.com>The New York Times

The president of the Organization of Petroleum Exporting Countries (OPEC) called Monday for a special meeting later this month to discuss the recent slide in oil prices, which have fallen almost 20 percent since just before the war with Iraq began.

Speaking to reporters in Paris after meeting with French government officials, the OPEC leader, Abdullah al-Attiyah, who is Qatar's oil minister, said: “My main worry is how to deal with the dramatic price drop. The market is full of oil. It’s facing a glut, not a shortage.” He suggested a meeting on April 24 at the group’s headquarters in Vienna, Austria.

Since the beginning of the year, the Organization of the Petroleum Exporting Countries has gradually increased output above its official quotas to provide extra oil for global markets in the wake of a national strike in Venezuela and in anticipation of war in Iraq.

Oil prices remained stubbornly high for most of the winter, despite OPEC’s efforts, until the recent decline, caused largely by the expectation that a swift victory by US-led forces would quickly revive Iraqi oil exports.

To halt the fall in crude oil prices on world markets, OPEC may decide to rein in production, holding it at its official quota levels, industry analysts said. “They’re worried about a price slide,” said Leonidas Drollas, chief economist with the Center for Global Energy Studies, a London research group. “They will tell each other: ‘We must go down to our quotas. The crisis is over, prices are at $23 a barrel and we must act.”’

Drollas was referring to the cost of Brent crude oil on the International Petroleum Exchange in London, which fell as low as $23.40 a barrel Monday. On the New York Mercantile Exchange, the price of crude oil for May delivery closed at $27.96, down 66 cents.

Industry analysts said that oil prices may remain somewhat volatile for some time, given the political instability in several major exporting countries.

“How stable is the Venezuelan recovery?” said Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates, voicing the worries that still prick at the market. “When will Nigeria be back? And when will Iraq will be back? We know there is no damage to Iraqi oil installations, but it takes time to bring that all back on stream.”

As it has increased production over the last few months to compensate for these problems, OPEC has worried that it could be creating a glut, de Ladoucette noted. And indeed, nearly all OPEC members are producing at their capacities, pumping a total of about 3 million barrels a day more than their official quotas, Drollas said.

Any change in output would probably not take effect until June or even July, said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, mainly because OPEC members already have contracts with buyers for next month’s oil sales.

“You’re not talking about a faucet they will turn on or off,” Goldstein said.

In the meantime, the extra OPEC production is replenishing stockpiles of crude oil in the United States that were badly depleted by the fall in exports from Venezuela and the cold winter. Oil prices had been much more volatile until extra OPEC exports began arriving in the United States a few weeks ago and were then tallied in Energy Department estimates of oil inventories around the country.

Goldstein said, “We think that the worst is over as far as crude oil supplies go.”

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