Experts: OPEC has made the right move

Experts stress OPEC's decision to roll over production ceiling shows its commitment to stabilise market.

<a href=www.middle-east-online.com>Middle East OnlineBy Amelie Herenstein - DOHA

OPEC's decision not to lower its oil production ceiling before Iraq resumes its exports demonstrates commitment to stabilise the market, experts said Thursday.

The Organisation of Petroleum Exporting Countries "probably didn't have a choice, this is probably the wisest decision in the short term," said Barbara Shook from the New-York based Energy Intelligence Group (EIG).

The cartel decided at an extraordinary meeting here Wednesday to roll over the ceiling of 25.4 million barrels per day (bpd) at least until July 31, when it will meet again in Vienna.

The meeting will assess the market situation in view of the likely resumption of Iraq's oil exports which stopped in March, prompting the ten other members - Saudi Arabia, Iran, Venezuela, UAE, Nigeria, Kuwait, Libya, Indonesia, Algeria and Qatar - to make up for the lost output.

The US-appointed interim head of the Iraqi oil ministry Thamir Ghadhban has said his country's production would reach 1.5 million bpd at the end of the month, of which nearly one million bpd will be exported.

But he said production would not return to it pre-war levels of around 2.7 million bpd for at least a year.

As prices are high, inventories low and Iraq's return to the market remains uncertain, OPEC opted for the status quo.

"Despite the fact that the market remains well-supplied, prices displayed an upward trend recently due to the slower-than-anticipated recovery in Iraqi production, coupled with unusually low stock levels," said the final statement of the Doha conference.

"However, with low stock levels anticipated to be replenished during the third quarter, the conference decided to maintain currently agreed production levels, with strict compliance" with current quotas, it added.

OPEC president and Qatari oil minister Abdullah Al-Attiyah said the July 31 meeting will be held even if Iraq does not resume exports, in order to "assess the market".

The cartel's goal is to maintain the price of its basket of crudes within a 22 to 28 dollars per barrel band.

"They are trying to micromanage the market. They've met every six to eight weeks since December," pointed out the EIG's Shook.

While Attiyah declined to speculate on the volume of a potential cut at the end of July, Shook said she would not expect any at all if the situation of the Iraqi oil sector is confirmed to be very degraded.

"The situation appears to be very very bad. I wouldn't expect any further cuts in July, especially if prices continue to be where they are," above 30 dollars per barrel for US benchmark crude West Texas Intermediate, she said.

She also said that the fact that they are meeting every six weeks, and not only twice a year as required, facilitates compliance with quotas.

"Since no enforcement power exists, OPEC accords are generally gentlemen agreements. The more often they meet, I think, the easier it is for them to behave like gentlemen. It keeps it fresh in everyone's mind."

Mexico's undersecretary for hydrocarbons, Juan Antonio Barges, also described OPEC's decision to roll over the production ceiling as "reasonable".

Mexico and four other exporters that are not members of the cartel - Russia, Angola, Oman and Syria - were invited to the Doha meeting.

Attiyah hinted that OPEC expected them to reduce their production should the organisation decide to do so in the future.

The flag of Iraq, where the organisation was born 43 years ago, was present in the hall of the Doha meeting, but its seat was vacant.

The US-British coalition ruling post-war Iraq has said it would be up to a future "representative" Iraqi government to decide whether the country remains inside the organisation.