Low stocks seen stalling OPEC oil cut
June 9, 2003, 2:14PM Reuters News Service
DOHA, Qatar - OPEC gathered in Qatar today amid signs high oil prices and low stock levels in the West will stay the cartel's hand on cutting output.
Global markets have been starved of two months of supply from Iraq, the world's seventh largest exporter before the war, despite extra volumes from Saudi Arabia and other cartel members.
With U.S. crude at nearly $32 a barrel, Indonesia and Venezuela have said there is no need for any cut at Wednesday's meeting from OPEC's 25.4 million barrel a day ceiling, in effect since the start of June.
However, the market outlook is far from clear and OPEC President Abdullah al-Attiyah said he was concerned by a possible surplus of oil in the next three months.
"All the analysts are talking about facing a 1.4 million bpd glut by the third quarter," Attiyah said. "So far I have to share that opinion."
Officials, for now, are not completely ruling out a cut to keep the heat under a market that is pricing OPEC's index of crudes near the top end of the group's $22-$28 target.
"We are going to see what measures should be taken: if we should keep things as they are, if we should make an adjustment, a cut. I can't yet say which," OPEC Secretary-General Alvaro Silva told Reuters.
UAE Oil Minister Obaid bin Saif al-Nasseri said he did not rule out a cut, but he thought the cartel should address a mismatch between quotas and real output levels first.
OPEC output, excluding Iraq, totalled 26.6 million bpd in May, 1.2 million more than limits set for June, according to a Reuters survey. But it is expected to fall this month as Saudi Arabia cuts back on loadings.
RIVAL EXPORTERS
The Middle East-dominated cartel, which controls half of world exports, will most likely use the Doha meeting to prepare the ground for a possible cut later this year when Iraqi output is expected to rise.
"With prices where they are I don't think OPEC will do anything," said Nauman Barakat, a broker at Fimat International Banque. "They will probably call another meeting once Iraq comes back and rope in non-OPEC to do its bit."
OPEC has invited rival exporters including Mexico and Russia to Qatar, hoping to maintain a fragile partnership that has kept OPEC's basket near $25 per barrel on average for four years -- a boom price compared to the previous decade.
Consuming countries have urged the cartel to keep supplies up, fearing a damaging spike in gasoline prices this summer when demand from motorists peaks.
Recovering from the war, Baghdad is preparing to resume international sales in about a week. Exports are expected to hit a million barrels per day next month, about half pre-war levels.
In April, OPEC ministers said they were ready to cut sharply to make room for Baghdad, possibly as soon as the Doha meeting.
Now data from the OPEC secretariat shows that the world market can absorb some 1.3 million bpd above forecast demand during the third quarter to replenish stocks, an OPEC source said, asking not to be named.
"That means there is more than enough room for Iraq at current quota levels," he told Reuters, based on an assumption that Iraq will supply at 1.5 million bpd in the third quarter.