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Qatar's oil minister Mohammed Saleh
Al-Sada, Chakib Khelil and
Ali al-Naimi share a laugh. Reuters

Opec set to keep oil output limits

Vienna, June 14, 2012

Opec prepared to keep oil output limits on hold on Thursday, leaving swing producer Saudi Arabia to unilaterally decide whether it needs to scale back supplies to stem a price slide.

Most in the Organization of the Petroleum Exporting Countries want cartel number one Saudi Arabia to cut back to defend oil prices at $100 a barrel but Riyadh is keen to prevent high fuel costs hampering a return to stronger economic growth in the West.

Extra oil from Saudi is largely responsible for lifting Opec output to 31.6 million bpd, well in advance of the group's formal 30-million-bpd target.

'In my opinion we should be keeping to the ceiling, the ceiling we agreed in December,' said Angolan Oil Minister Jose de Vasconcelos. 'In all probability,' Opec would retain that formal target, said Kuwaiti Oil Minister Hani Hussein.

Saudi Oil Minister Ali Al-Naimi, though, has often surprised in the past and caused some uncertainty earlier in the week.

First he suggested Opec might need to lift its collective limit to match forecast demand for the rest of the year -- estimated by Opec headquarters at 30.7 million bpd. The next day he said said he was happy with policy as is.

Iran, often at odds with Saudi Arabia at Opec, appears in no mood to squabble at this meeting, despite being unhappy that a fall in prices has coincided with a drop in its exports because of Western sanctions against its nuclear programme.

'We object to the drop in prices,' said Iranian Oil Minister Rostam Qasemi.

A meeting between Saudi Oil Minister Ali Al-Naimi and Qasemi passed amiably, delegates from the two countries said.

Oil prices have dropped from a $128 peak for the year in March to $97, in part because the economic outlook has darkened but also because of increased Saudi output that in April set a 30-year high of 10.1 million barrels a day.

That has lifted world oil inventories rapidly, a deliberate move by Riyadh to counter the possibility that Iranian oil output falls heavily when a European Union embargo on Tehran starts next month. Iranian production is already down to a 20-year low.

Naimi has called the extra Saudi volumes and consequent oil price decline 'a kind of stimulus' for the world economy. His advisors say Riyadh is engaged in a balancing act to raise stocks to cover for Iranian losses while taking into account the prospect that the fragile world economy will slow oil demand.

Analysts say risks are growing that prices could fall further if Saudi doesn't cut back. 'There is a surplus in the market. Most of the surplus has gone into storage, both fixed and floating, so the market in a way hasn't felt that yet,' said former Algerian Oil Minister Chakib Khelil, now a consultant.

'This idea of trying to anticipate the shortfalls from Iran could backfire. If demand weakens because of the economic situation then you have a weak global economy and oversupply in the market.'

Oil prices though are anything but predictable, largely because, on top of opaque supply and demand fundamentals, markets have to take into account the politics of producer countries.

Iran is the main uncertainty for oil prices - the impact of sanctions on its oil sales, negotiations with world powers over its nuclear progamme that resume in Moscow shortly and the possibility that Israel might launch an attack on its nuclear facilities.

'History tells us that a global financial collapse could see oil prices fall to $50 a barrel and below whilst an attack on Iran take them to $150 and above,' said David Hufton of London oil brokers PVM.

Delegates said that while the decision on production looked straightforward, no easy agreement was expected over the appointment of Opec's next secretary general.

Four countries have proposed candidates - Saudi Arabia, Iran, Iraq and Ecuador.  -Reuters




Tags: Saudi Arabia | Oil | Opec | Output |

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