OPEC may need output cut soon, some analysts say

Reuters, 06.05.03, 5:52 AM ET By Tom Ashby

LONDON, June 5 (Reuters) - OPEC may pull back from a heavily signalled output cut at a meeting next week because prices have stayed higher than ministers expected, but many oil market analysts still see the cartel tightening its belt soon.

Prices have pushed up towards the upper end of OPEC's target range of $22-$28 per barrel over the past few weeks, but analysts see OPEC oil flows sparking a price-busting stock-build in the third quarter unless it cuts output soon.

OPEC ministers said in April they were ready to trim their output ceiling of 25.4 million barrels per day (bpd) by up to two million bpd at the June 11 meeting in Qatar to make room for Iraq, but the rally has dampened the likelikood.

"Our numbers point to a needed cut of 1.4 million bpd in the third quarter, but prices being where they are, we don't think they will do anything," said Leo Drollas at London's Centre for Global Energy Studies.

Indonesia and Venezuela have both said this week that OPEC need not cut while its export basket remains towards the top end of the target range of $22-$28 per barrel. The basket stood at $26.72 on Wednesday.

Tor Kartevold, special adviser on trading strategy to Norway's Statoil <STL.OL>, said this could be too short-term an outlook. Including a modest stockbuild of 600,000 bpd to 1.0 million bpd in the third quarter, Kartevold pegged the demand for OPEC crude excluding Iraq at 24-24.5 million. OPEC output, excluding Iraq, stood at 26.6 million bpd in May, according to a monthly Reuters survey.

"OPEC needs to cut by about 1.5 million barrels per day to avoid an excessive stock build in the third quarter," Kartevold said, forecasting a recovery of Iraqi output to 1.5 million bpd in the third quarter, versus current output at half that level. If prices stay where they are, Drollas said OPEC might stay its hand on June 11, and call an additional meeting in July when Iraqi output is more certain.

However, not all analysts shared this view.

Mike Rothman at Merrill Lynch expects demand on OPEC oil to be much stronger in the latter half of the year, partly to replenish low inventories.

"OPEC quotas will need to be left as is, with the 25.4 million bpd ceiling basically meeting market requirements for the third quarter period, provided Iraq does return to the market on the order of 1.5 to 2.0 million bpd," he said.

Iraq announced its first post-war crude oil exports on Thursday, and Iraq's de facto oil minister, Thamir Ghadhban, expects to reach a production of 1.5 million bpd by mid-June. Heavy looting and suspected sabotage at Iraqi oilfields has delayed the recovery of the industry.