VIENNA, 9 March 2006 — OPEC said yesterday it will keep oil output close to the limit to bring prices within consumers’ comfort zone and fill supply gaps, but a threat by Iran to review its oil exports cast a shadow.
Iran issued its warning at the United Nations’ International Atomic Energy Agency even as the nation’s oil minister sat down across town with OPEC colleagues to discuss oil output, export disruptions in Nigeria and Iraq and prices above $60 a barrel.
Oil Minister Kazem Vaziri struck a softer note, saying: “We have no intention of reducing any of our exports.”
OPEC President Edmund Daukoru of Nigeria said there will be no change to the group’s 28 million barrels per day ceiling in place since July 2005, despite forecasts for lower demand in spring. “There are simply too many geopolitical factors to change production,” he said.
Oil consumers have not felt this vulnerable for decades. Rebel attacks have cut exports from the world’s eighth biggest supplier Nigeria by 11 million barrels since the start of the year. Fellow OPEC member Iraq is in crisis and oil prices are at their highest level in real terms for 25 years.
OPEC’s economists forecast world oil demand will slow in the second quarter. Iran is struggling to sell its hard-to-refine high sulfur crude and top exporter Saudi Arabia has kept output flat since May 2004 in response to its customer needs.
Kuwaiti Oil Minister Sheikh Ahmad Al-Fahd Al-Sabah said OPEC was working to bring US crude below $60. He believed there was no need for the organization to cut output all year. “If we continue with the same production I believe the price will go below $60 in the second quarter,” the minister said.
Saudi Arabia, the most influential voice in OPEC, has said it believes a production cut now would be counterproductive.
Fellow OPEC ministers have lined up in support, drowning out price hawk Venezuela’s call for the group to look at reducing production by 500,000 barrels daily.
Some analysts are looking with concern to the peak winter season, fearing OPEC, which pumps over a third of the world’s oil, may struggle to meet demand if output problems persist. “If demand continues to be strong we are going to be struggling,” said Yasser Elguindi, senior managing director at Medley Global Advisors. “OPEC appears to be taking the view that the risks are weighted more to the upside than the downside.”
Demand from the United States, consumer of a quarter of the world’s oil, and China has been the main driver in a rally that has seen prices double in the past two years. So far the world economy has coped but analysts say an upward shift of $10 a barrel for about two years would begin to bite, driving inflation about 0.25 percent a year higher and paring growth by the same amount.
OPEC confirmed June 1 as the date of its next ministerial meeting in Caracas.
