Opec be ready for ‘painful decisions’

<a href=www.timesofoman.com>Times of Oman

RIYADH — Iraq’s return to the oil market is not expected to alter Opec’s short-term policies on output and price, but the producers’ cartel, which meets in the Gulf this week, should be ready for “painful” decisions in coming years, economists warned yesterday.

Oil ministers of the Organisation of Petroleum Exporting Countries will discuss at their June 11 meeting in Doha, Qatar, the main issue of reallocating output quotas once Iraq increases exports to effective levels.

“Opec will not cut its output levels now, because the price is high. They will mostly focus on discussing quota levels when Iraq returns,” Abdulwahab Abu-Dahesh, senior economist at Riyad Bank, said.

“Iraq is not expected to return to its pre-1990 export levels before a couple of years ... A number of technical problems must be overcome. That too requires huge investments,” Abu-Dahesh said.

Oil prices inched upwards on Friday as the energy ministers of Saudi Arabia, Venezuela and Mexico met in Madrid and pledged to cooperate with other producers in ensuring a fair price for the crude to stabilise the world market.

The price of benchmark Brent North Sea crude oil for July delivery rose 34 cents to $27.78 per barrel.

New York’s light sweet crude July contract was up 31 cents to $31.05 in early trading.

The three countries stressed the need to “continue monitoring developments in the market during the coming few months in a bid to avoid factors that may destabilise it.”

The Opec meeting on June 11 will assess the state of the oil market, especially in light of the expected resumption of Iraqi production and the return of Venezuela and Nigeria to their normal production levels.

Regular Iraqi oil exports are not expected to restart until early July at the earliest, and the volume of such exports is unknown due to widespread looting and telecommunications problems.

The acting head of Iraq’s Oil Ministry, Thamir Ghadhban, said last month that he expected output to reach 1.5 million barrels per day (bpd) by the end of June and three million bpd by the end of the year.

But oil expert Abdullah bin Ali Ibrahim, of the Dammam-based Arab Petroleum Investments Corp., believes no major change will happen before one to two years.

“In the short-term of one to two years, nothing significant will happen. But in the mid-term, changes are bound to take place. Everything depends on Iraq’s volumes of production and export ... and size of investments,” Ibrahim said.

The future of production quotas and protection of Opec’s $22-28 price band appears to increasingly depend on Iraq’s decision to continue membership with the 11-member cartel or to opt out.

Baghdad has not been subject to a quota since July 1990 when output was set at 3.14 million bpd, the same as Iran and about 14 per cent of Opec’s production ceiling.

“The possibility of Iraq’s not returning to Opec is very remote. It is in Iraq’s interest to remain in the cartel because that would give it a privileged status to produce more and it can help maintain fair prices,” Abu-Dahesh said.

“Iraq needs long term finance for reconstruction and thus wants to see fair oil prices continue. I believe Baghdad has no option but to remain within Opec. This also applies to US oil firms expected to invest in Iraq,” he said. Iraq has not been invited to attend the Doha meeting because the occupation authorities have not yet installed a national government in Baghdad.

But Ibrahim believes that if Iraq is to remain with Opec, cartel members, especially Saudi Arabia, are required to take painful decisions by cutting their output quotas. — AFP