OPEC set to keep output steady, wants high price
By Luke Pachymuthu, Barbara Lewis
Reuters
First Posted 09:15:00 09/08/2008
Filed Under: Economy, Business & Finance
VIENNA, Austria – Members of the Organization of Petroleum Exporting Countries (OPEC) could rein in excess supply to shore up oil prices, still above $100 a barrel, but they are expected to leave agreed output targets unchanged at their meeting on Tuesday.
Calls from within the OPEC to curb output have grown louder as demand has retreated in response to high prices and economic slowdown.
The group is estimated to be pumping 790,000 barrels per day (bpd) above the collective ceiling of 29.67 million bpd for its 12 members with output limits, leaving room for maneuver before it need consider any formal cut.
"I don't believe there is any possibility we will change production levels," Ecuador's Oil Minister Galo Chiriboga told reporters on Sunday.
But he said OPEC members needed oil prices to be high.
"A price of under $100 is not adequate for producers. Prices now are responding to the reality of fundamentals, not speculation, so the price is reasonable," added Chiriboga, who was the first minister to arrive in Vienna ahead of Tuesday's meeting.
On Friday, US crude fell to a five-month low of just above $105 a barrel, nearly 30 percent below an all-time high above $147 struck in July.
The price fall has prompted several OPEC ministers to urge stricter compliance with agreed production targets.
"There is now oversupply and that will lead to a stock build-up," Libya's most senior oil official Shorkri Ghanem said by telephone on Sunday.
Asked if it was necessary for OPEC members to observe their output targets, he replied: "Of course. If the market is in oversupply then it is better for everybody to have a balanced market, which means sticking to the quotas."
Iran has also said the trend was for stocks to build.
Its OPEC governor Mohammad Ali Khatibi told the official IRNA news agency continued OPEC production at current levels would lead to over-supply of its crude in the first half of 2009, causing prices to drop.
He was quoted as saying prices could not fall below $80 per barrel as this was the production cost cited for some new fields.
STEADY ALL YEAR
OPEC has kept official output targets steady all year, although top exporter Saudi Arabia, in response to then record prices, took a unilateral decision to pump in July at the fastest rate since 1981.
The kingdom, which pledged to produce 9.7 million bpd, around 750,000 bpd above target, is responsible for the bulk of OPEC's over-production.
OPEC's last official change was agreed at a meeting a year ago in Vienna when it agreed to increase production by 500,000 bpd.
The price of oil was then less than $80 a barrel.
Analysts have said OPEC at this week's meeting would seek to avoid the political backlash of reducing production when oil still costs more than $100 and oil producers' revenues have surged.
"Pressure on Saudi to cut its production will mount at the September 9 meeting," BNP Paribas wrote in a note, but added: "In the end, quotas may be left unchanged, allowing Saudi to make discretionary changes."
Whatever the outcome of this week's OPEC meeting, oil prices could be driven higher in the short term by the latest hurricane to threaten the Gulf of Mexico.
A US Federal Emergency Management Agency official said Sunday hurricane Ike was expected to enter the oil-producing Gulf of Mexico as a severe category 4 storm.
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