OPEC Likely to Defer Cut in Oil Output as Prices Rise (Update4)

June 9 (<a href=quote.bloomberg.com>Bloomberg) -- The Organization of Petroleum Exporting Countries, supplier of a third of the world's oil, will probably defer output cuts until later this year because prices are rising and Iraqi exports are delayed, officials and analysts said.

The group meets Wednesday in Doha, Qatar, to consider a response to the impending return of sales from Iraq, which pumped 3 percent of world supply before the war. Exports stopped when U.S. and British forces invaded on March 20, and looting since then has hampered efforts to restore production.

OPEC doesn't see any need to change the quota'' for now, said Leo Drollas, deputy executive director at the London-based Centre for Global Energy Studies, a consulting company founded by former Saudi oil minister Sheikh Zaki Yamani. Prices are too high. They will need a cut sometime in the summer.''

Crude oil has risen by more than a fifth in New York since April to around $31 a barrel, because of a drop in inventories and an April 24 accord by OPEC to lower output as of this month. A cut in quotas in Doha is unlikely, Qatari Oil Minister Abdullah bin Hamad al-Attiyah and Indonesian Oil Minister Purnomo Yusgiantoro said last week.

Crude oil for July delivery slid 36 cents to $30.92 a barrel in after-hours electronic trading on the New York Mercantile Exchange, as of 11:40 a.m. in London.

Oil prices are at an acceptable level, said OPEC Secretary- General Alvaro Silva in an interview last week at OPEC's headquarters in Vienna, signaling he also favors no change in output. The 10 OPEC members outside of Iraq restrain production to keep their price index between $22 and $28 a barrel. The index was at $26.77 on Thursday and has averaged $25.41 a barrel for the last three years.

Waiting

This is a meeting to monitor the market,'' Silva told reporters in Doha today. After our decision in April to cut from the first of June, we have to know the result'' before taking further steps.

The meeting in Qatar, current holder of the OPEC presidency, is OPEC's fourth in 2003. Ministers later this year will have to decide when to reduce output to make room for Iraq, which pumped 2.5 million barrels a day before the war, analysts said.

``The main issue is going to be how we're going to insert Iraq,'' Venezuelan Deputy Oil Minister Luis Vierma said in an interview in Vienna last week. Eventually, OPEC will have to cut production, he said.

In a prelude to Wednesday's meeting, the oil ministers from Saudi Arabia, Venezuela and non-OPEC Mexico met in Madrid on Friday to discuss the market. They took no action to limit oil output, saying supply and demand are in balance.

The three nations, which are usually among the top four suppliers to the U.S., have consulted on oil policy since 1998.

The market is receiving all the supply it needs,'' Juan Antonio Barges, Mexico's deputy oil minister, said in a telephone interview in Doha. The market is not calling for cuts.''

Four other independent oil-producing countries -- Russia, Angola, Syria and Oman -- accepted OPEC's invitation to send representatives to the Doha meeting. Iraq, under control of the U.S.-led coalition, wasn't asked to attend.

Officials from Algeria and Kuwait have left open the chance of a cut in quotas on Wednesday. OPEC should consider such a move because a slowing world economy may prevent demand from keeping pace with supply as Iraqi output recovers, analysts said.

`Fine Tuning'

Forecasters have cut estimates for oil demand as severe acute respiratory syndrome reduces travel and slows growth in Asia. The International Monetary Fund expects the world economy to expand by 3.2 percent this year, hindered by concern over war and terrorism. It predicted 3.7 percent growth in September.

OPEC needs to cut, but they might not do that just now,'' said Tor Kartevold, an analyst at Statoil ASA, Norway's biggest oil company. It's a question of fine tuning for OPEC, which is always very difficult'' given the situation in Iraq.

Iraqi shipments through a pipeline to the port of Ceyhan, Turkey, may not start for two more months because equipment for operating the route was stolen, Adel Kazaz, director-general of Iraq's North Oil Co., said last week in Kirkuk, Iraq.

The oil fields around Kirkuk accounted for half the country's exports. The pipeline closure to Ceyhan will leave Iraq dependent on shipments from the Rumaila fields in the south, where erratic power supplies and the loss of a pumping station have hampered operations.

Iraq

OPEC needs to know what Iraq is producing and exporting,'' said Adam Sieminski, an oil strategist at Deutsche Bank AG. Unfortunately, even the Iraqis don't seem to know that.''

Iraq is pumping 700,000 barrels a day, according to the nation's oil ministry. U.S. Vice President Richard Cheney has said output should reach prewar levels, or even 3 million barrels a day, this year.

While rising supply from Iraq may threaten OPEC's control of prices in coming years, industry executives expect the group to accommodate Iraq without a collapse in prices for now.

``We will see reasonable strength through the end of the year,'' said Paul Skinner, head of Royal Dutch/Shell Group's oil- refining unit, at a conference in London last week.

``OPEC has done a good job in the last three to four years in flexible management of the supply side of the market. I would expect that they would continue to demonstrate that flexibility.''