VIENNA, 15 January 2005 — Acting OPEC Secretary General Adnan Shihab-Eldin said yesterday that the world oil market is adequately supplied with crude, apparently giving a rationale for production cuts despite supply concerns and the expectation of colder weather in the northern hemisphere.
The 11-nation Organization of Petroleum Exporting Countries is expected to consider cuts in production when it meets in Vienna on Jan. 30, and at another meeting to be held in March.
“At these meetings, OPEC ministers will decide what measures should be taken to prepare for the second quarter when demand typically declines,” Shihab-Eldin said, in a statement released at the organization’s headquarters in Vienna.
Shihab-Eldin reiterated OPEC’s commitment to ensure adequate supplies and said that OPEC “stands ready to take the necessary decisions to maintain market stability.”
Shihab-Eldin said declining oil prices “as mild winter weather (came) and ample OPEC supply of close to 30 million barrels per day (bpd) over the last three months of the year have allowed current supply to not only meet demand but also produce a contra-seasonal build in commercial crude oil stocks to levels at or above the five-year year average.” He said that these efforts had resulted in a substantial moderation in crude oil prices although prices have edged back up since the beginning of January.
This was due to “seasonal market characteristics, such as the shift toward colder weather in the northern hemisphere and a related decline in US crude and heating oil inventories.
“Supply disruptions in the North Sea, Gulf of Mexico, Nigeria and Iraq have also played a role,” Shihab-Eldin said.
But he said that despite concerns about winter conditions, “global oil supply, particularly OPEC output, remains strong and more than adequate to meet expected demand.”
Oil prices hovered close to six-week highs yesterday amid renewed worries over US winter fuel stocks, the prospect of OPEC production cuts and supply problems in the North Sea. New York’s main oil contract, light sweet crude for delivery in February, stood at $48.25 a barrel in early deals, up 21 cents from Thursday’s close of $48.04 dollars — the highest level since Nov. 30.
The price of Brent North Sea crude oil for February rose four cents to $45.25 a barrel, also trading at six-week highs.
Oil prices have risen by about $6 since early January on nervousness about cold weather in the United States and Europe, as well as supply disruptions in several areas.
“There is a tightening of crude oil availability,” said Kevin Norrish, an analyst at Barclays Capital. US oil imports have been falling steadily since early December, suggesting that the crude oil market is tighter than previously thought, he said.
“OPEC cut output and we had a lot of production problems coming in at the same time: in Iraq, in the North Sea, in the Gulf of Mexico, where US production is still well below normal levels after the hurricanes. All these things add together and start to paint a tighter picture for crude.”
OPEC agreed in Cairo last month to reduce production by one million barrels a day from the start of 2005 to bring the group closer to its official output ceiling of 27 million barrels.
OPEC ministers said then that they were ready to reduce output again if needed to mop up excess supply in anticipation of a seasonal downturn in demand as the northern hemisphere winter ends.