OPEC Members Split on Production Cuts

Posted 13 December 2006 @ 08:26 am EET     Print     Reprint     E-Mail     Comments

ABUJA (AP) - OPEC price hawks are urging new production cutbacks, but other members are balking, signaling tough discussions ahead when oil ministers gather Thursday for their last price and policy meeting of the year.

The disagreement over whether further reductions in output were needed reflected uncertainty over demand over the next four months, worries that inventories are too high and chafing over the shrinking U.S. dollar that makes each barrel of crude worth less than it was a year ago.

It also reflects lack of consensus about where oil is headed in a year when prices peaked at $78.40 a barrel in July, then plummeted toward $55 last month before rising to present levels in the low $60s.

While there is general agreement among the producing group's 11 members that anything much below that would be unsatisfactory, the high-demand Northern Hemisphere winter is still ahead. That, and recent falls in unusually high inventory figures are giving ammunition to those in the Organization of Petroleum Exporting Countries urging moderation.

Still, more mild weather ahead could again draw prices below $60 — and build inventories. And with the dollar down 10 percent this year against the euro, each barrel of oil buys less European consumer goods now than it did in 2005. Those arguments are used by OPEC members seeking to slash output at the Thursday meeting in Abuja.

OPEC already agreed in October to cut crude output by 1.2 million barrels a day more than 4 percent of its previous production although the actual reduction is estimated at no more than two-thirds of that maximum. Staking out their positions for Thursday's meeting, price hawks on Tuesday called for taking more oil off the market.

"In view of the supply of oil being considerably above demand, we will try to have a reduction in production," said Iran's Oil Minister Kazem Vaziri Hamaneh before leaving Tehran for the Nigerian capital. Venezuela also has called for a cutback. But others were opposed.

"I think that prices at $61 a barrel are good for stabilizing the market," Indonesia's OPEC governor Maizar Rahmanhe said. And United Arab Emirates' Oil Minister Mohammed al-Hamli said OPEC would not cut crude production unless "absolutely necessary", adding that current oil prices around $60 a barrel are reasonable — a stance shared by Kuwait's Oil Minister Sheikh Ali Al Jarrah Al Sabah.

Ultimately, the views of oil powerhouse Saudi Arabia, the group's largest producer, will go a long way toward influencing whatever decision is made and Saudi oil minister Ali Naimi has not weighed in either way.

But with other OPEC members not fully adhering to the cuts agreed on in Qatar on Oct. 19, the Saudis might be reluctant to back an additional commitment to tighten oil spigots.

Naimi was due in Abuja Wednesday. Ahead of his arrival, Al Hayat, the Saudi daily, on Tuesday quoted OPEC sources as saying the group would keep its oil production unchanged and review the state of oil markets again at a special meeting at the end of January.

A major influencing factor at the OPEC decision-making table Thursday will be the level of oil inventories in the U.S. and other large consuming nations. Combined crude oil and petroleum products held by U.S. oil companies fell by 53.5 million barrels since the end of September to 1.045 billion barrels at the end of November, preliminary data from the Energy Information Administration show.

Still, because of lower than expected refinery operations, crude oil inventories stand at a 12-year high for this time of year, at near 340 million barrels. Crude oil futures in New York fell Monday to their lowest settlement in nearly two weeks as forecasts for warm December weather damped demand expectations and more doubt arose over whether OPEC will cut extra production. On Tuesday, benchmark prices on the New York Mercantile Exchange were trading up 70 U.S. cents at $61.92 a barrel.

The Abuja meeting will mark the second time the group has met in Nigeria, a key producer of high-quality, light, sweet crude oil. And the African venue is fitting — OPEC is likely do discuss a bid by Angola to join. At around 1.4 million barrels a day, Angola's output ranks it ahead of OPEC members Algeria, Indonesia and Qatar in the OPEC rankings of top oil producers.