OPEC seals expected deal to leave production levels unchanged

OPEC seals expected deal to leave production levels unchanged

Caracas (Platts)--1Jun2006

OPEC ministers meeting in Caracas Thursday sealed a widely-expected deal
to leave crude output levels unchanged for the time being, and to meet again
as planned in September to review the market situation.
The decision had been widely signaled in advance by ministers as high oil
prices overrode concerns about the potential impact of seemingly abundant
supply.
Convinced that there is too much oil on the market, some ministers and
delegates expressed the view that if the group were looking only at
fundamentals of supply and demand, it would in fact have to consider cutting
production.
But, as several ministers made clear, cutting production is not an option
when oil prices are riding high at $70/barrel.
Libya's top oil official Shokri Ghanem said before the formal meeting
that the oil producer group was powerless to do anything about high prices.
"We have done all that we can do. We are producing all that we can produce,"
Ghanem said.
"A good part of the price has increased this time because of the rhetoric
and political tension. When things calm down, prices will go down, but if the
tension continues prices will go up," he said.

'OVERSUPPLIED AND OVERPRICED'
OPEC president Edmund Daukoru told a press conference that oil supply was
currently running some 2.2 million b/d above demand. Ali Naimi, oil minister
of OPEC's most powerful member Saudi Arabia, said world oil markets were
"oversupplied and overpriced."
In a separate interview with the Saudi-owned daily Al-Hayat, Naimi said
experts believed that current high price levels were not justified. Indeed, he
said, "market fundamentals do not justify more than $50/barrel."
That was the price Venezuelan president Hugo Chavez told an audience of
ministers and delegates earlier June 1 was "a fair price, as a floor."
Daukoru, who is also Nigeria's oil minister, said it was "difficult to
say what is the right price ... Acceptable levels means a level that
everybody, producers and consumers [are happy with]...through our dialogue
with consumers we have a shared feeling of what is right."
Iranian oil minister Kazem Vaziri Hamaneh said he believed OPEC members
were seeking oil price stability rather than the establishment of a specific
price target. "I think all the OPEC members prefer to have more stable prices.
They prefer not to see too much fluctuation." But there was, he said, "no
specific price."
Vaziri Hamaneh said he did not see oil prices dropping sharply in the
near future because of limited global surplus crude production capacity.
It was true that "at the moment supply is higher than demand and stocks
are building," he said. "But I don't think there is going to be a drastic
decline of the price in the near future, because I don't think there is enough
extra capacity available in the market."
Even as some within OPEC fret about the possibility of a price collapse,
the memory of last year's devastating hurricanes Katrina and Rita--which have
left more than 300,000 b/d of oil production shut in in the Gulf of
Mexico--remains strong. Jun 1 marked the official start of the 2006 hurricane
season, which is expected to be "active."
Raising official production levels does not seem to be an option for OPEC
either, with most member countries pumping at the limits of their capacity, as
Libya's Ghanem pointed out.
Only OPEC kingpin Saudi Arabia--producing around 9.5 million b/d of its
11.3 million b/d capability--has any significant volume of surplus capacity,
but oil minister Ali Naimi has said repeatedly that there is little interest
from refiners in taking the extra oil because it is mostly too heavy for their
tastes. Asked Thursday ahead of the formal session why more Saudi crude was
not being lifted, he said: "Nobody wants heavy oil, there are no refineries to
handle it," he said.

CAPACITY EXPANSION PLANS
OPEC president Daukoru said OPEC's surplus production capacity was set to
rise to 10% by the end of this year. "With OPEC's upstream capacity on course
to rise to around 33 million b/d by the end of the year, against an expected
average output of 28.6 million b/d for the year, our spare capacity should
exceed 10%, a level which past experience has shown to be very comfortable for
the market," he said.
OPEC's current 28 million b/d production ceiling has been in place since
July 2005, and independent estimates suggest that OPEC-10 output is hovering
around that level.
Ministers did not schedule another conference before OPEC's next ordinary
conference on September 11 in Vienna. But Libya's Ghanem said OPEC was ready
to act if needed in the intervening period. "If we need to meet we meet. If we
need to cut we cut. If we need to increase we increase."
Beyond September, ministers agreed to meet on December 14 in the Nigerian
capital Abuja.

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.