OPEC
takes calculated risk by maintaining oil output quota
By
Amelie Herenstein
AFP
VIENNA
Petroleumworld.com
03 10 06
OPEC, by maintaining its oil output quota even though the market
is well supplied, is counting on prices staying high in the short
term because of geopolitical tensions and a strong global economic
growth.
The Organization of the Petroleum Exporting Countries (OPEC) decided,
as expected, at the end of its meeting Wednesday to keep official
production at 28.0 million barrels per day.
With Iraq, which is a member of the cartel but not included in
the official quota, OPEC is producing 29.3 million barrels of
crude per day currently, which is close to its highest levels
in 26 years and represents about 40 percent of world crude.
For members producing without restrictions, the situation is almost
ideal, since it guarantees them excellent financial yields with
the price of a barrel of oil still close to 60.0 dollars.
Prices fell sharply late Wednesday following the publication of
better-than-expected US oil stocks data, but recovered on Thursday
to 60.34 dollars a barrel in New York and 60.51 dollars in London.
Some OPEC officials are even hoping to maintain production all
year.
"OPEC is not interested in cutting production, they only
cut when they have to and I hope they don't have to," Saudi
Arabian Oil Minister Ali al-Nuaimi told reporters after the meeting.
For now, production rates are unlikely to drop, ministers said.
"We expect the geopolitical problems to persist so the risk
(that prices go up) still exists," Algerian Oil Minister
Chakib Khelil said, adding "the market is well supplied and
I do not think we are taking a big risk" by maintaining production.
OPEC President, the Nigerian Edmund Daukoru said that global economic
growth in 2006 would be 4.3 percent "which shows the world
economy has until now resisted the hike in prices."
And causes for uncertainty abound for oil traders, with Iran blowing
hot and cold on whether it would halt crude exports if punished
over its nuclear programme, attacks by militants on oil installations
in Nigeria, violence in Iraq and strong demand for oil from the
US and China.
Also, producing countries have less room for movement than ever
as most of them are already producing at full capacity. The lack
of spare capacity, which serves as a security cushion in the event
of disruption in supplies from a major producer, is an additional
source of uncertainty.
Mike Wittner, an analyst at Calyon bank spoke of technical factors
affecting the market: US refineries damaged by last year's hurricanes
will soon be up and running again, as well as those being renovated
in several Western countries.
"Crude demand may decrease a bit in the second quarter but
it will be picking up strongly" afterwards, he said, predicting
63.0 dollars per barrel this year in New York.
Algerian oil minister Khelil had similar arguments.
"What we did was take a big risk now, a calculated risk we
think," he said after the meeting, adding "we hope the
refineries will restart, that there will be no stocking (of oil)
and we hope demand will pick up in the third and fourth quarters,"
he added.
Jason Schenker of Wachovia bank said things could change.
"If the disruption is allowed to sort of fade from the forefront
of the public consciousness, then prices can fall," he said,
referring to nuclear talks with Iran.
"If you end up with a bunch of bureaucrats, talking it out
over what will happen with Iran, people forget about it, that
happened in the middle of February and it's likely to happen again,"
he added.
AFP
03 09 06
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© 2006 AFP. All rights reserved
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