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OPEC quota cut comes into view as prices fall
By Adam Plowright
AFP
VIENNA
Petroleumworld.com 09 12 06OPEC oil ministers decided Monday to maintain their oil output ceiling at a near 25-year high, but attention quickly switched to when the cartel might cut production to stem falling prices.
The cartel has been pumping at near full capacity in a bid to cool the overheated oil market, but prices hit five-month lows of around 65 dollars on Monday, switching attention from the danger of high prices to the risk of an abrupt fall.
"The topic of the day is clearly the determination of a price floor below which OPEC should cut its production," said analysts at French bank Societe Generale.
OPEC President and Nigerian Oil Minister Edmund Daukoru said OPEC aimed for a "reasonable" price without specifying what a reasonable level was.
However, Iranian Oil Minister Kazem Vaziri-Hamaneh said that a fall under 60 dollars a barrel was "not a favourable price" and this was echoed by his Venezuelan counterpart Rafael Ramirez.
Societe Generale said that the floor for prices had previously been assumed to be about 50 dollars a barrel, based on "isolated comments from some members".
It was unclear what price would ultimately trigger a cut in the quota by OPEC, which as an organisation aims to secure long-term returns for its members by stabilising prices through supply controls.
Saudi Arabian Oil Minister Ali al-Nuami has described the recent fall as a correction, stressing that there was no need for alarm.
The cartel has to weigh its quota policy against its impact on price and, consequently, the effect on supply and demand.
High prices offer high returns from oil exports, but they also stimulate exploration work and make rival sources of energy cost-effective, increasing non-OPEC supply to the market.
High prices also dampen economic growth and encourage demand-reducing conservation efforts.
OPEC said on Monday it was ready to take decisions at its next meeting in December, to take place in the Nigerian capital of Abuja, adding that Daukoru had been mandated to consult with members in between times.
"If we feel the market needs to cut to stabilise, we will do (so)," Qatari Energy Minister Abdullah bin Hamad al-Attiyah had said on Sunday.
Analysts have suggested that OPEC might call a meeting before December if prices fall much lower.
OPEC added that it had identified "many downside risks", which analysts say include the possibility of significant surplus oil supply next year, the risk of a global economic slowdown, and a cooling of geopolitical tensions, particularly with regard to Iran.
The 11-country group of exporters has had an output quota of 28 million barrels per day since June 2005, which binds all members except Iraq.
At the close on Monday, New York's main contract, light sweet crude for delivery in October, had dropped 64 cents to 65.61 dollars a barrel.
It earlier hit 64.85 dollars -- the lowest point since March 28 and more than 17 percent below its historic high of 78.40 dollars reached on July 13.
In London, Brent North Sea crude for October delivery settled down 78 cents at 64.55 after striking an intra-day low of 63.97 -- the lowest point since March 28.
Brent had struck an all-time high 78.64 dollars only on August 7.
AFP 12 0206 GMT 09 06
Copyright ©2006 AFP. All Rights Reserved.
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