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OPEC to Forgo Production Cut

Posted on: Wednesday, 8 March 2006, 03:00 CST

By WILLIAM J. KOLE

VIENNA, Austria - OPEC all but abandoned the idea of cutting production to ease $60-plus a barrel oil prices, insisting a surplus of crude will ensure ample supplies in the face of political instability and terrorist attacks targeting pipelines and other facilities.

Oil ministers heading into Wednesday's meeting of the Organization of Petroleum Exporting Countries conceded that prices were uncomfortably high, but cautioned against lowering output at a time when extremists are attacking energy installations in Nigeria and the Middle East.

"We at OPEC are trying to keep the oil price below $60 a barrel," said Kuwait's oil minister, Sheik Ahmed Fahd Al Ahmed Al-Sabah, who believes geopolitical tensions are adding $5 to $8 to the price per barrel.

Many OPEC members repeatedly have said that prices are optimal in the $40-$50 range.

But they have hovered considerably higher for months: On Tuesday, light, sweet crude for April delivery fell 56 cents to $61.95 a barrel on the New York Mercantile Exchange. April Brent on the ICE Futures exchange dropped 55 cents to $61.79 a barrel.

Sheik Ahmed said the 11-nation cartel - which pumps a third of the world's oil - should maintain its current output of 28 million barrels a day.

That target does not include Iraq, which adds an additional 1.5 million barrels. Some members have voiced concern that there could be a glut of up to 2 million barrels a day in the second quarter, in part because of a milder than usual winter in the northern United States.

Venezuela's oil minister, Rafael Ramirez, said he would press other OPEC members to cut production by at least half a million barrels of crude a day. The South American country is one of the group's most strident voices in favor of constraining output to keep prices high.

"The market is overstressed ... this means we have to cut around 500,000 barrels a day," Ramirez said.

"In the next quarter, there will be a normal fall in demand and we will have close to 2 million barrels a day of overproduction. It's a topic we have to evaluate," he argued.

But Mohammed al-Hamli, oil minister of the United Arab Emirates, insisted the cartel's output was "already adequate."

Oman's oil minister, Mohammed bin Hamed al-Rumhy, said concerns of oversupply did not justify a cut in output and expressed doubt that the group would support such a move. OPEC's acting secretary-general, Mohammed Barkindo of Nigeria, said he expected no surprises from Wednesday's meeting.

Worries over Iran's nuclear ambitions, militant threats in Nigeria and attacks on Middle East facilities stoked concerns about supply disruptions as OPEC mapped out its pumping and pricing strategies for the spring and summer.

With consensus building against the idea of lowering production - and spiking prices even higher - OPEC planned to assess "the influence of new political issues on the oil market," said Qatar's oil minister, Abdullah bin Hamad al-Attiyah.

Recent attacks by militants on Nigerian pipelines and oil facilities have reduced that country's production by 455,000 barrels a day. Nigeria normally exports 2.5 million barrels daily.

"The tangible, physical disruption of Nigerian supply has propped up prices over the past few weeks," said Jason Schenker, an economist with U.S.-based Wachovia Corp. "That's a big deal. And then we just saw prices shoot up again over Iran."

Edmund Daukoru, OPEC's president and Nigeria's oil minister, said the African nation was "committed to providing adequate security for operators in the (Niger) Delta." He said Nigeria planned to pump an additional 600,000 barrels a day by June.

Iran's OPEC governor, Hussein Kazempour Ardebili, has sought to reassure the world that his country's escalating standoff with the West over its suspect nuclear program would not affect its exports of crude.

The International Atomic Energy Agency's 35-nation board is meeting this week in an effort to ease the standoff with Tehran, which has vowed to begin large-scale uranium enrichment if the U.N. Security Council intervenes.

Al-Attiyah said oil ministers also would discuss demands on the market in the second quarter, a period when demand usually decreases. The International Energy Agency estimates that demand will fall by 2 million barrels a day between April and June.

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On the Net:

OPEC, http://www.opec.org

Source: Associated Press/AP Online

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