OPEC Seen Leaning On Members To Curb Excess Oil Output
Enviado: 8/12/2002 10:56Back to Headlines | Previous Story | Next Story
OPEC Seen Leaning On Members To Curb Excess Oil Output
LONDON (AP)--With OPEC pumping far more oil than it agreed to last year, the cartel is expected to insist this week that members tighten their taps to help prevent a glut that could send crude prices tumbling.
But Saudi Arabia - de facto leader of the Organization of Petroleum Exporting Countries - also will argue that the group should increase the level of its targeted output, several analysts said. That would amount to moving the goal post for OPEC's production, aligning it more closely with the amount of crude the group actually is producing.
Together, these seemingly contradictory steps may represent OPEC's best chances for keeping crude prices stable and within its desired range of $22-$28 per barrel when the cartel's oil ministers meet Thursday in Vienna.
"It's all to do with credibility. At the moment, when you have 3 million barrels of overproduction, people don't have a whole lot of faith in the quota system," said Lawrence Eagles, head of commodity research for London brokerage GNI Ltd.
A possible U.S.-led war with Iraq and the drift toward revolution in Venezuela complicate the ministers' task.
Iraq has the world's second-biggest oil reserves, and fears abound that a military campaign against the Baghdad government would paralyze Iraqi oil exports and, possibly, disrupt shipments from elsewhere in the Gulf. OPEC member Venezuela, a key source of crude for the U.S., plunged further into turmoil last week when employees of the national oil company went on strike to support compatriots calling for the ouster of President Hugo Chavez.
On Saturday, Chavez acknowledged that the strike has affected oil production and slowed exports. He indicated he would replace the board of directors of Petroleos de Venezuela S.A., the massive Venezuelan oil monopoly.
"Production has already been affected ... and some oil fields have been closed," Chavez said in the Venezuelan capital, Caracas.
However, such political risks are out of OPEC's control. Delegates likely will focus instead on a push-me, pull-you strategy of curbing excess production while increasing members' output quotas.
January contracts of light, sweet U.S. crude dropped 28 cents a barrel Friday to $27.01 in afternoon trading in New York. Contracts of North Sea Brent crude for January delivery fell 33 cents a barrel to $25.47 in late trading in London.
Estimates of OPEC's overproduction vary, but Eagles' estimate of 3 million barrels a day is 14% more oil than the group agreed to pump under the target set in December 2001.
Quota-busting is an old habit for OPEC. Although compliance has improved greatly in recent years, it worsened sharply this autumn when producers boosted their output to cash in on a price spike caused by nervousness about a potential war in the Persian Gulf.
"This is the worst it's been in four years," said Adam Sieminski, an oil price strategist at Deutsche Bank in London.
OPEC, which produces about one-third of the world's oil, has an output target of 21.7 million barrels a day.
The group's zeal in pumping more crude threatens to undercut prices, particularly during the second quarter of next year when demand for heating oil tends to plummet. It also hurts OPEC's recently acquired reputation for reliability.
Some cartel members appear to have taken note, and analysts say OPEC's daily production fell by at least 200,000 barrels from October to November.
"The specter of a price fall reared its head, and they got frightened," said Leo Drollas, chief economist for the Center for Global Energy Studies in London.
By complying more strictly with their individual quotas, OPEC members will try to cut total production by some 1 million b/d, analysts say.
OPEC can soak up much of its remaining overproduction simply by raising its output target, an idea Saudi Arabia is said to have proposed at the group's previous meeting in September. Other OPEC members demurred then, but some analysts expect the group to agree this week to increase its target by 1.5 million b/d.
This would reverse a cut OPEC made in its production target at the start of the year. Such a quota increase would take place on paper only; no additional barrels would flow to markets.
A boost in quotas and a reduction in daily output would eliminate 2.5 million b/d from current overproduction.
Most analysts agree crude supplies are adequate to meet current demand.
"We're relatively in balance now, but that's not going to last as we get out into the first quarter," Deutsche Bank's Sieminski said.
"Very shortly, there's going to be too much oil in the market," particularly if tensions recede over Iraq and political stability returns to Venezuela, he said.
If true, that could mean cheaper gasoline and heating oil for consumers in the U.S. and other oil-importing countries.
Dow Jones Newswires
12-07-02 2010ET
OPEC Seen Leaning On Members To Curb Excess Oil Output
LONDON (AP)--With OPEC pumping far more oil than it agreed to last year, the cartel is expected to insist this week that members tighten their taps to help prevent a glut that could send crude prices tumbling.
But Saudi Arabia - de facto leader of the Organization of Petroleum Exporting Countries - also will argue that the group should increase the level of its targeted output, several analysts said. That would amount to moving the goal post for OPEC's production, aligning it more closely with the amount of crude the group actually is producing.
Together, these seemingly contradictory steps may represent OPEC's best chances for keeping crude prices stable and within its desired range of $22-$28 per barrel when the cartel's oil ministers meet Thursday in Vienna.
"It's all to do with credibility. At the moment, when you have 3 million barrels of overproduction, people don't have a whole lot of faith in the quota system," said Lawrence Eagles, head of commodity research for London brokerage GNI Ltd.
A possible U.S.-led war with Iraq and the drift toward revolution in Venezuela complicate the ministers' task.
Iraq has the world's second-biggest oil reserves, and fears abound that a military campaign against the Baghdad government would paralyze Iraqi oil exports and, possibly, disrupt shipments from elsewhere in the Gulf. OPEC member Venezuela, a key source of crude for the U.S., plunged further into turmoil last week when employees of the national oil company went on strike to support compatriots calling for the ouster of President Hugo Chavez.
On Saturday, Chavez acknowledged that the strike has affected oil production and slowed exports. He indicated he would replace the board of directors of Petroleos de Venezuela S.A., the massive Venezuelan oil monopoly.
"Production has already been affected ... and some oil fields have been closed," Chavez said in the Venezuelan capital, Caracas.
However, such political risks are out of OPEC's control. Delegates likely will focus instead on a push-me, pull-you strategy of curbing excess production while increasing members' output quotas.
January contracts of light, sweet U.S. crude dropped 28 cents a barrel Friday to $27.01 in afternoon trading in New York. Contracts of North Sea Brent crude for January delivery fell 33 cents a barrel to $25.47 in late trading in London.
Estimates of OPEC's overproduction vary, but Eagles' estimate of 3 million barrels a day is 14% more oil than the group agreed to pump under the target set in December 2001.
Quota-busting is an old habit for OPEC. Although compliance has improved greatly in recent years, it worsened sharply this autumn when producers boosted their output to cash in on a price spike caused by nervousness about a potential war in the Persian Gulf.
"This is the worst it's been in four years," said Adam Sieminski, an oil price strategist at Deutsche Bank in London.
OPEC, which produces about one-third of the world's oil, has an output target of 21.7 million barrels a day.
The group's zeal in pumping more crude threatens to undercut prices, particularly during the second quarter of next year when demand for heating oil tends to plummet. It also hurts OPEC's recently acquired reputation for reliability.
Some cartel members appear to have taken note, and analysts say OPEC's daily production fell by at least 200,000 barrels from October to November.
"The specter of a price fall reared its head, and they got frightened," said Leo Drollas, chief economist for the Center for Global Energy Studies in London.
By complying more strictly with their individual quotas, OPEC members will try to cut total production by some 1 million b/d, analysts say.
OPEC can soak up much of its remaining overproduction simply by raising its output target, an idea Saudi Arabia is said to have proposed at the group's previous meeting in September. Other OPEC members demurred then, but some analysts expect the group to agree this week to increase its target by 1.5 million b/d.
This would reverse a cut OPEC made in its production target at the start of the year. Such a quota increase would take place on paper only; no additional barrels would flow to markets.
A boost in quotas and a reduction in daily output would eliminate 2.5 million b/d from current overproduction.
Most analysts agree crude supplies are adequate to meet current demand.
"We're relatively in balance now, but that's not going to last as we get out into the first quarter," Deutsche Bank's Sieminski said.
"Very shortly, there's going to be too much oil in the market," particularly if tensions recede over Iraq and political stability returns to Venezuela, he said.
If true, that could mean cheaper gasoline and heating oil for consumers in the U.S. and other oil-importing countries.
Dow Jones Newswires
12-07-02 2010ET