OPEC content to leave oil output as it is

12/11/2005

KUWAIT (Reuters) - OPEC oil ministers were united on Sunday that they should keep pumping close to the limit through winter and the world’s biggest exporter Saudi Arabia seemed relaxed about a possible dip in second quarter demand.

OPEC President Sheikh Ahmad al-Fahd al-Sabah said he expected unanimous backing for his proposal to retain the highest output for 25 years, with prices within sight of record highs and the onset of winter in top consumer the United States.

“I think my proposal to keep output unchanged will be accepted by all members,” Sheikh Ahmad, who is also Kuwait’s oil minister, told reporters.

OPEC meets here on Monday to chart policy into early 2006. The only question mark appears to be whether the cartel will renew a three-month-old offer to supply all of its spare oil if the market wants it, and when ministers next meet.

Some members want to hold more talks in January or February because they are worried that if they keep output at today’s near-maximum 30 million barrels per day prices will fall sharply in the spring as stocks build in consumer countries.

“Let us get through the fourth quarter of 2005 and the first quarter of 2006, then we will tell you what our feeling is about the second quarter,” Saudi Arabian Oil Minister Ali al-Naimi told reporters on his arrival.

Nigerian Minister of State for Petroleum Edmund Daukoru told Reuters on Saturday he favoured leaving output untouched for six months. Iran’s OPEC governor Hossein Kazempour said OPEC should keep its ceiling for three months.

“Everyone is happy—producers and consumers,” said Libyan Energy Minister Fathi Omar Bin Shatwan.

Strong demand from the United States, China and India has fueled a two-year rally that has seen a doubling in the oil price. A shortage of refineries to churn out oil products like gasoline, diesel and heating oil has added impetus.

OPEC offered up all of its two million bpd of spare oil capacity in September in a bid to rein in prices that had raced to a record $70.85 a barrel. But buyers have been slow to take up the mostly heavy crude that is difficult to turn into light transport fuels. Oil closed at $59.50 on Friday.

“We have put the two million (on the table) three months ago...and not one single barrel was asked for,” Naimi said.

SECURE SUPPLIES, STABLE PRICES

Big consumer countries have fretted that high oil prices are hurting economic growth. Saudi Arabia’s Naimi said market volatility was more of a threat to the world economy.

“There are much more qualified economists than us who have said the biggest concern to the world economy is not the level of price as much as the volatility of price and I think that’s what we should focus on.”

“We will do our best to maintain reliable and secure supplies to the market. I have always maintained that prices are determined by the market.”

Analysts said OPEC would be wise to leave production unchanged.

“There is no reason to do anything other than a rollover. The market is functioning and oil is plentiful,” said Robert Mabro, president of the Oxford Institute for Energy Studies.

OPEC may gain more influence over prices next year, when the world’s thirst for oil is expected to slow and the exporter group brings on new capacity. Projecting first quarter demand at 29.8 million bpd and the second quarter at 27.7 million bpd, OPEC sees a lower requirement for its crude.

These figures imply a cut in production. OPEC, excluding Iraq, has an official production ceiling of 28 million bpd.