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OPEC set to keep pumping at full flow as oil dollars flood in
By Jitendra Joshi
AFP
WASHINGTON
Petroleumworld.com 05 29 06The OPEC cartel appears set to maintain its oil output levels at a meeting in Venezuela this week, reluctant to rock a high-flying market that is reaping its 11 members a bonanza of petrodollars.
The Organisation of Petroleum Exporting Countries will hold its latest talks in Caracas on Thursday -- giving Venezuela's firebrand President Hugo Chavez a high-profile stage to exhibit his anti-US rhetoric, if he wishes.
In an unusual move, Chavez himself will address the meeting of OPEC oil ministers. Venezuela, OPEC's only Latin American member, has called for the cartel to cut its output, arguing that global supplies are plentiful.
Analysts believe that the call by Chavez's government will receive short shrift from the other OPEC members led by the cartel's kingpin, Saudi Arabia.
But Venezuela, backed by Iran, its fellow anti-US adversary in the group, is likely to persist with proposals to price oil in euros rather than dollars, and for OPEC to adopt a minimum target price of 50 dollars a barrel.
And talk of a cut from OPEC's total production quota -- 28 million barrels a day -- might get a better hearing down the line if the world economy slows down this year, as many expect.
"As long as prices are hanging above 70 dollars a barrel, the likelihood of a production cut by OPEC is virtually zero," Alaron Trading energy analyst Phil Flynn said.
"But I do think that a lot of the OPEC producers are going to be concerned about the talk of slowing demand. So it wouldn't surprise me if they drop hints of a possible cut somewhere down the road," he said.
OPEC's member countries -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela -- hold about two-thirds of the world's oil reserves.
They supply 40 percent of the world's oil production and half of its exports. Sudan has now been invited to join OPEC.
Heading into the Caracas meeting, the cartel is under pressure from the world's most powerful economies to do more to bring down record-high oil prices and so limit the potential of a marked deterioration in global growth.
At a meeting last month of the Group of Seven industrial powers, British Chancellor of the Exchequer Gordon Brown said OPEC "must look at its production quotas and it must look at both how we can increase output and refining capacity".
But OPEC leaders have repeatedly said it is up to major consumers like the United States to boost their refining capacity to get more crude to customers in the form of gasoline and heating oil.
Cartel members also argue that they are powerless to rein in a speculative frenzy that has seized upon geopolitical jitters linked to Iran's nuclear ambitions and unrest in Nigeria.
Increasing demand for energy from fast-growing China and India has also played a role in the oil market's startling rally of recent years.
More immediately, gasoline demand looked set to remain strong as US drivers take to the roads en masse for their summer holidays.
In any case, OPEC members with the exception of Saudi Arabia are pumping out all the crude they can. Many are flouting the cartel's official quotas so that they do not lose out on the market boom, analysts say.
"With prices so high now, the countries who are above quotas are going to blissfully ignore the formal levels," said James Williams, energy economist at WTRG Economics, citing Algeria, Kuwait and Libya.
"If it comes to the point that OPEC does have to cut output, say at year-end, they will have to realign their quota system if they're going to have an effective cut in actual production," he said.
"But at this point, don't expect any change to quota or production levels."
AFP 28 0303 GMT 05 06
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