Opec likely to focus on quota busters
December 10, 2004
Cairo - The push to cut Opec oil production grew yesterday with the minister of the United Arab Emirates saying on the eve of a meeting of the oil producers' cartel that members had to honour output quotas to stem oversupply and falling prices.
The comments by Mohammed bin Dhaen al-Hamili appear to reflect a consensus building among Opec oil ministers that market supplies have to be reduced and price erosion stopped.
Opec, which meets today to discuss its oil output policy for the first half of 2005, had been surprised by the speed of the oil price fall, al-Hamili said.
Excluding Iraq, which is outside the quota system, the 10 other Opec members have a self-imposed output target of 27 million barrels a day. In reality, they pump about 1.1 million barrels a day beyond that, leaving the group room to cut real production without altering its target.
Total Opec output, including Iraq, is 30 million barrels a day.
Benchmark US futures contracts for crude oil have fallen by almost a quarter since the record $55-plus highs of late October. The decline has been sharpest in the past week or so, spurred by increases in US petroleum inventories, mild winter weather in the northern hemisphere and little sign of a slowdown in output.
"The price decline was expected, but the speed of the decline was a surprise," al-Hamili told reporters.
The first step should be to tackle overproduction. "Logically, we should start with the excess," al-Hamili said.
He also said Opec should set a new price range of $33 to $38 for its oil, arguing that the current span of $22 to $28 was outdated due to the weak dollar and the realities of more expensive crude.
"When prices go down, it's hard to arrest a decline," al-Hamili said. "We have to examine the basics."
Officials from Iran and Venezuela, which are the second- and third-largest producers in Opec, have also said they would like to see the low end of Opec's preferred price range at about $30 a barrel.
Opec members Libya, Qatar, Kuwait, Iran, Venezuela and Nigeria are among the most vocal in urging compliance with the organisation's official quota.
Hopes of Opec ministers advocating an end to quota busting were bolstered on Wednesday when production powerhouse Saudi Arabia signalled it was receptive to their concerns.
"Our objective is to keep the market balanced and stable," said Saudi oil minister Ali Naimi, whose country pumps nearly a third of Opec's total output.
No amount of extra production from Opec seemed to satisfy the world market for most of this year, but in recent weeks, prices have dropped significantly from October's highs.
In electronic trading early in New York, light sweet crude for delivery in January rose 43c to $42.37 a barrel (R1.44 a litre).
Oil analysts in Cairo for today's meeting suggested that Opec sentiment for a cut appeared too strong to be ignored.
"My understanding is that they will cut back from overproduction but quotas will stay the same," said Diane Munro of Wood Mackenzie. - AP
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