Saudis: No need to cut OPEC output

Business Materials 9 September 2008 15:51 (UTC +04:00)

OPEC powerhouse Saudi Arabia suggested on Tuesday that a meeting of oil ministers of the 13-nation organization will decide to keep crude production steady, despite their concerns over rapidly falling prices.

With the Saudis accounting for about a third of the output of the Organization for Petroleum Exporting Countries, their views often are adopted by ministerial meetings deciding on whether to boost, keep steady, or cut oil production. Therefore, the comments by Oil Minister Ali Naimi suggested that the ministers would opt for the status quo, reported CNN.

"The market is fairly well balanced," Naimi told reporters after arriving in Vienna in the dawn hours of Tuesday. "I think things are in balance, in a healthy position."

His comments appeared to rebut calls for a cutback from Iran, OPEC's No. 2 producer and a traditional OPEC price hawk. "We believe the market is oversupplied," Iran's oil minister, Gholam Hossein Nozari, told reporters Monday.

Other OPEC ministers have been less strident in calling for a tightening of the oil spigots, despite a nearly 30 percent tumble in oil prices after they neared $150 a barrel in July. OPEC nations account for two-thirds of the world's known oil reserves, and about 40 percent of the world's oil production, affording them considerable control over the global market.

Still, ahead of Tuesday's decision-making meeting, there was some sentiment for more production discipline aimed at reducing the overhang left by members producing above individual quotas. Shokri Ghanem, the chairman of Libya's National Oil Corp., told The Associated Press: "There is a glut in the market that warrants creating order."

Asked how discipline should be re-established, he said that OPEC members should be urged to curb output in line with assigned quotas.

Mohammed Abdullah Al-Aleem -- Kuwait's oil minister and a member of an OPEC committee whose recommendations could influence OPEC's final decision about output -- said there is no need for OPEC to cut production "for the time being." When asked about whether OPEC countries should stick to quotas instead of overproduction, he did not reply directly.

But OPEC President Chakib Khelil warned of looming oversupply.

Saying "there is plenty of oil on the market," Khelil forecast that daily oil output would exceed demand by between 500,000 and 1.5 million barrels a day by the end of the year or early next year.

Asked what OPEC's likely decision regarding output would be, Khelil said "all options are open."

With most of the oil ministers observing the Islamic month of Ramadan, the meeting on output levels has been postponed until late in the evening, and a decision was not expected before early Wednesday.

Khelil also reiterated an often-stated OPEC explanation for the large fluctuations in oil prices -- that it is tied to speculators whose money flows into oil when the U.S. dollar weakens but who abandon their investments in the commodity when the dollar gains ground on other currencies -- as it recently has.

"What we are seeing now is that the inverse relation between the U.S. dollar and the oil price is verified," Khelil said.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent.

Benchmark crude for October delivery rose a modest 11 cents Monday to settle at $106.34 a barrel on the New York Mercantile Exchange, as Hurricane Ike threatened oil and gas facilities in and around the Gulf of Mexico.

On Friday, the contract fell by $1.66 to settle at $106.23, a five-month low, strengthening OPEC concerns about the rapid erosion of prices.

Still, a major cutback from the 30.5 million barrels being pumped last month by OPEC members is unlikely without Saudi compliance. Naimi, the Saudi oil minister, has instead talked about a floor of $80 as the red line for action.

OPEC has reason to be cautious.

Despite their precipitous fall, prices remain 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.

Additionally, OPEC understands that high prices drive down demand and will likely try to find a balance between high profits and a price that the market can accept.

That middle way would mean agreeing to pare away at overproduction without reducing the overall output quota of 27.3 million barrels a day set in November for the 12 OPEC members under production limits.