Top Worldwide: OPEC Prepares to Cut Oil Production, Planning to Bolster Prices
<a href=quote.bloomberg.com>Bloomberg By Alex Lawler
Vienna, April 21 -- OPEC, supplier of a third of the world's oil, is planning to cut production from its highest level in 1 1/2 years to prevent a price slump as demand slows and Iraqi sales near a return to the market.
Saudi Arabia led OPEC's output higher this year to avert shortages caused by outages in Venezuela and Nigeria and the war- related halt to Iraqi exports. Production is some 2 million barrels a day more than demand, OPEC ministers said last week.
Crude oil in New York has slid 24 percent from a 12-year high of $39.99 a barrel in February while the coalition deposed Saddam Hussein in Iraq and seized the country's oil fields. Faced with a seasonal drop in use, the Organization of Petroleum Exporting Countries meets Thursday to discuss how to prevent a glut.
OPEC is pumping an awful lot of oil,'' said Steve Thornber, who manages about 400 million pounds ($628 million) at Threadneedle Asset Management in London, including BP Plc shares. If OPEC doesn't take action or it's seen as not aggressive enough, you will see a sharp drop in the oil price.''
The group sets quotas to keep prices between $22 and $28 a barrel, and some members may be reluctant to lower production because of a need to raise government revenue. It had planned to next meet on June 11 in Doha, Qatar, though called this week's gathering after prices slid.
OPEC in March pumped 1.57 million barrels a day more than the target of 24.5 million, almost enough to supply Spain, according to Bloomberg estimates. Of the total, Saudi Arabia pumped 9.2 million barrels a day.
Some OPEC members will feel Saudi Arabia should take a greater proportion of any cut,'' said Paul Spedding, an oil analyst at Dresdner Kleinwort Wasserstein. The debate is whether Saudi Arabia will agree with that.''
The return of Iraqi supplies will also be a challenge for OPEC. Production may resume from Iraq's northern fields as early as May, the U.S. military has said. Resuming exports depends on deciding who will sell the oil.
Too Much Oil?
Indonesia will ask OPEC to lower daily oil production by as much as 2 million barrels, the country's oil minister, Purnomo Yusgiantoro, has said. Venezuela, Qatar, Algeria and Iran have said markets have too much oil, signaling support for a cut.
Oil consumers, including the International Energy Agency, representing 26 industrialized countries, urge caution, saying supplies are needed to replenish inventories. U.S. crude stocks are 14 percent lower than a year ago, and a reduction in output would threaten to bring higher fuel bills at a time of slowing economic growth.
Algeria, OPEC's third-smallest producer, has called on OPEC members to comply with their targets. In comments that boosted world prices on Thursday, Iran, the second-largest OPEC producer, said any reduction should come from the quotas.
Any decision to cut the quota now would be premature,'' said Julian Lee, an analyst at Centre for Global Energy Studies, a consulting company founded by former Saudi oil minister Sheikh Zaki Yamani. The world needs to rebuild stocks.''
Challenge
OPEC's oil price index was last at $26.25 a barrel, close to the middle of the group's range of $22 and $28 a barrel. The marker has been above the $22 floor since March 2002.
Saudi Arabia has yet to signal its policy. State-owned Saudi Aramco in May will fulfill all oil contracts to customers in Europe, Japan and South Korea, traders said after seeing notices from the oil producer.
We should expect to see a move for stricter quota adherence,'' said Brian Gibbons, an analyst at CreditSights Inc., an independent New York-based research company. The bulk of that will have to come from Saudi Arabia. It will be difficult for the small to mid-sized OPEC members to trim production.''
Brent crude in London will fall below $20 a barrel in the third quarter from about $25 now if OPEC holds supply near present levels, the CGES said in a report. Should OPEC adhere to the quota, prices will rise to $27.90 next quarter, the group forecast.
Iraq Invited
Iraq will be able to start pumping oil from its northern fields in weeks because of limited damage to installations, the U.S. military has said. Production in the south, where the harm is greater, can't resume for three months.
As a point of protocol, OPEC headquarters invited Hussein's oil minister to attend Thursday's meeting. The current whereabouts of Amer Rasheed, who appears as the six of spades in the deck of cards issued to U.S. forces in Iraq detailing the most-wanted members of Hussein's regime, are unknown.
One of five nations that founded OPEC in 1960 in Baghdad, Iraq has no quota because of United Nations sanctions imposed for the nation's 1990 invasion of Kuwait. Iraq's Vienna embassy couldn't be reached to confirm if it will send a representative to the meeting.
Iraq will send a delegation led by Major General Jawdat al- Obeidi to the group's meeting Thursday, Reuters reported yesterday, citing an Iraqi opposition official.
Last Updated: April 20, 2003 19:01 EDT