Opec set to keep unchanged output

Opec set to keep unchanged output

By Javier Blas in Vienna

Published: January 31 2008 12:25 | Last updated: February 1 2008 05:52

Opec was on Friday set to rebuff oil-consuming countries’ pleas for an increase in production to help to lessen inflationary pressures, blaming the recent record high prices on speculation.

Ahead of its meeting on Friday in Vienna, ministers from the oil producers’ cartel on Thursday night said there was no need to increase supplies, warning instead that a deteriorating economic outlook could force a cut later this year.
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Chakib Khelil, Opec’s president, said: “There is not demand for more oil and consequently I expect that production [levels] will be maintained.” Mr Khelil‘s comments were echoed by other ministers.

Opec delegates said Saudi Arabia, the cartel’s de facto leader, shared the growing consensus that output levels should be left unchanged, although the kingdom was worried about the impact of high oil prices on consuming countries.

Ali Naimi, the Saudi oil minister, on Friday told the London-based al-Hayat newspaper that Opec did not need to raise output.

”If there is a need to take an action, we would take it. But the current situation shows that all market fundamentals are sound,” Mr Naimi said, adding that “supply and demand are equal, and global reserves are fine.”

Analysts warned on Thursday, however, that Opec’s traditionally unpredictable nature still left room for surprises at Friday’s meeting.

US President George W. Bush has personally called on Riyadh to increase its oil supplies as record energy prices were exacerbating the current economic crisis.

Analysts said Saudi Arabia since November had covertly increased its oil production above the official Opec limit in an effort to cool the market. Washington has warned that oil prices will remain above $85 a barrel in the first half of the year, supported by the lowest crude oil inventories in developed countries for nearly four years.

Opec delegates shared the view that inventories were too low, but pointed out that gasoline stocks were healthy. In addition, the cartel’s own analysis found the inventories would recover sharply in the second quarter, thanks to lower seasonal demand with the end of the northern hemisphere’s winter.

Opec forecast it would need to supply about 31.99m barrels a day this quarter to balance the market, and just 30.5m b/d in the second quarter. The group’s total current output is 31.98m b/d.

Opec will review its decision at its next meeting on March 5, with some countries, including Venezuela and Iran, raising the prospect that production should be cut if the US economy falls into recession.

Crude oil prices on Thursday fell $1.64 to $90.69 a barrel.

Opec ministers said the price increase to a nominal record high of $100.09 a barrel earlier this month reflected not the fundamentals of supply and demand, but rather speculative activity as investors rushed out of Wall Street and poured money into commodities.

“Crude oil is the new gold,” a delegate said. “Investors are using crude oil as a perceived safe heaven and as a hedge against the weakening of the US dollar.”

Mr Khelil, who is also Algeria’s oil minister, said up to $30 of the current oil price was due to non-fundamental factors.

Mohammed Abdullah Al-Aleem, Kuwaiti oil minister, added: “Prices have gone down by $10 a barrel already and we have to see the reasons. We will have a clearer picture in March.”