Some OPEC members hope to cut production
Thursday, December 9, 2004
CAIRO, Egypt -- The possibility of a cut in OPEC production grew stronger Wednesday after the oil minister of heavyweight Saudi Arabia indicated he was aware of majority sentiment in favor of a reduction.
"Our objective is to keep the market balanced and keep it stable," Saudi Oil Minister Ali Naimi said in Cairo, where the Organization of Petroleum Exporting Countries meets Friday.
Saudi Arabia produces nearly a third of OPEC's total output of 30 million barrels a day, including Iraq's production of about 2 million barrels.
No amount of extra output from OPEC seemed to satisfy the world market for most of this year, but in recent weeks prices have dropped significantly from summer highs of $50 a barrel.
On Wednesday, light sweet crude for January delivery rose 48 cents to $41.94 per barrel on the New York Mercantile Exchange. In London, Brent crude futures climbed 42 cents to $38.69 per barrel. Despite a sharp pullback recently, oil prices are about 30 percent higher than a year ago.
In his initial remarks to reporters Wednesday, the Saudi oil minister appeared to signal his country's opposition to production cuts, saying he was satisfied with current OPEC output and not concerned about the most recent drop in prices.
"You guys forget -- one year ago it was in the 20s, now it's in the 40s, even Saudi crude is in the 30s," Naimi told reporters, talking in terms of dollars a barrel.
As for current OPEC output -- which is about 1 million barrels a day above the organization's formal ceiling without Iraq -- he said: "I'm happy with the way it is."
He appeared to hedge later, however.
"We never meet without an objective, and when we have an objective, we take action," he said.
His comments could signal that the Saudis are moving closer to Libya, Qatar, Kuwait, Iran and Venezuela, which are urging compliance with OPEC's official quota of 27 million barrels a day as a way to stem falling crude prices.
Oil analysts in Cairo suggested that OPEC sentiment for a cut appeared too strong to be ignored.
"My understanding is that they will cut back from overproduction but quotas will stay the same," said Diane Munro of Wood Mackenzie.
Edmund Dakouro, Nigeria's presidential adviser on petroleum and energy, joined those looking for cuts, saying Wednesday he wanted to see "a signal to the market to stop a further fall."
Dakouro said a good first step would be for OPEC members to stick to their current production quotas.
"This could mean a reduction of up to 1.5 million barrels a day," Dakouro told Dow Jones Newswires.
Fathi bin Shatwan, Libya's oil minister, said OPEC had two options at its Friday meeting -- either directly reducing actual production or lowering the official output ceiling.
Asked which of the two options he backed, Shatwan said: "I prefer both."
By both pledging to refrain from quota busting and lowering the output ceiling, OPEC would send a strong message it aims to underpin crude oil prices.
"Either we comply with 27 million barrels a day or, if we think people won't comply, we need a real reduction of 1 million barrels a day," he said.
He also said OPEC should abandon its current $22-$28 a barrel preferred price range. Instead, he said, "they shouldn't have a price band but just a downward limit" that defends $35 a barrel.
Officials from both Iran and Venezuela -- OPEC's No. 2 and No. 3 producers -- have said they would like to see the low end at about $30. A higher price range is also supported by OPEC members United Arab Emirates and Indonesia.
Petroleum prices have been high because of strong global demand, a tight supply cushion and fears of output disruptions in Iraq, Nigeria and Russia. In September, a strong hurricane knocked out significant oil production in the Gulf of Mexico, though the region's output is now recovering.
Market prices remain nearly double the bottom end of the present price band. The recent fall in prices reflects several factors: replenished stocks, slowing economies, high production by both OPEC and non-OPEC countries, a relatively mild Northern Hemisphere winter and the end of speculative futures buying that led oil to settle at $55.17 twice in October.