OPEC president - Balance must be restored

VIENNA, Austria -- Oil producers are pumping 2 million barrels a day in excess of the world's needs and OPEC members will study "all the scenarios" for restoring balance in crude markets, the cartel's president said Wednesday.

Driven by fears of weakening prices in the wake of the war in Iraq, delegates of the Organization of Petroleum Exporting Countries arrived in Vienna ahead of an emergency meeting called to reassess their production levels. Iraq's eventual reintegration into the group overshadowed the planned talks, but President Abdullah bin Hamad Al-Attiyah said Iraq wasn't on the agenda.

In fact, for the first time in OPEC's 43-year history, no one will even represent Iraq, one of OPEC's founding members, when the oil ministers gather today.

Many energy analysts expected OPEC, which supplies about a third of the world's oil, to agree to curb production. The big question was whether OPEC would try do so by lowering its official output target or by taking the less drastic step of reining in the amount of oil its members were pumping above their respective quotas.

Dropping crude prices

"Personally, I believe there is now 2 million-plus" barrels each day in oversupply, Al-Attiyah told reporters.

Crude prices have dropped by $6-7 a barrel in just the last two weeks, he added.

"I cannot say 2 million or more or less, but obviously there is oversupply in the market," said the United Arab Emirates' Oil Minister Obaid Al-Nasseri.

The price of oil for June delivery dropped $1.34, or 5 percent, to $26.65 on Wednesday on the New York Mercantile Exchange after the United States reported a larger-than-expected increase in the nation's commercial inventories. U.S. supplies increased by 9 million barrels to 286.2 million barrels, according to the Energy Information Administration, the statistical arm of the Energy Department.

Highest rate ever

The EIA said U.S. crude imports averaged 10.6 million barrels per day last week -- the highest rate ever for a seven-day period.

Many OPEC members ramped up their production before the outbreak of fighting in Iraq, to forestall a potential oil shortage. Market nervousness triggered a steady rise in crude prices prior to the war.

Now that the war is over, OPEC worries that the world is awash in crude just as seasonal demand ebbs to its lowest point. Prices have tumbled, and some group members fear prices may fall further unless they comply with OPEC's official output target of 24.5 million barrels a day.

The group pumped an average of 26.2 million barrels in March, according to estimates compiled by investment bank J.P. Morgan.

"I think we have to tackle first the compliance," Al-Nasseri said. "Then we shall see if there is a need to cut" the output target itself.

Although no one in OPEC has formally proposed cutting production quotas, the group hasn't ruled it out.

Saudi Arabia's Oil Minister Ali Naimi said one factor they would be studying is the impact that severe acute respiratory syndrome is having on oil demand.

"I know that SARS is affecting demand. It's having an effect on everything," he told reporters, referring to the cancellation of airline flights in Asia. Jet fuel accounts for 8-10 percent of global crude consumption.

Nigeria's presidential adviser on petroleum and energy, Rilwanu Lukman, said Tuesday in London that he expected OPEC to cut production by 1 million to 1.5 million barrels a day.

However, some analysts see no need for cuts of this size. Crude inventories in importing countries remain low, and refiners want to build up stocks to more comfortable levels before gasoline demand peaks during the summer driving season.

"The cuts in production don't have to be anywhere near as drastic as some of the doomsayers were saying only a few weeks ago," said Raad Alkadiri of The Petroleum Finance Co., a consulting firm based in Washington.

Whatever OPEC decides, it must factor in the eventual resumption of crude exports from Iraq and decide how to reintegrate Iraq into the group's quota system. Iraq hasn't participated in its production agreements since the 1991 Gulf War.

Modest amounts of crude began flowing Wednesday from Iraq's Rumeila South oil field to a storage tank near the southern Iraqi city of Basra.