OPEC to thrash out details of 'done deal' to cut output

OPEC to thrash out details of 'done deal' to cut output

Doha (Platts)--18Oct2006

OPEC's plan to cut crude production by 1 million b/d is "a done deal,"
Algerian oil minister Chakib Khelil said Wednesday on the eve of the oil
cartel's emergency meeting in the Qatari capital, Doha.

But nearly two weeks after news emerged of the planned 1 million b/d cut,
the group has still to agree on how to distribute it. Although some top OPEC
ministers and officials have said that the cut will be made from actual
production, it appears that some countries still prefer to use quotas under
the official but largely redundant 28 million b/d ceiling as the baselines for
the reduction.

Indeed, acting secretary general Mohammed Barkindo, when asked if OPEC
had a consensus to cut output by 1 million b/d, stopped short of echoing
Khelil's "done deal" comment, saying OPEC hoped to "solidify" the "growing"
consensus at formal talks late Thursday.

Barkindo said he would meet with officials from OPEC's Vienna secretariat
at 11 am local time (0800 GMT) to review the latest data, including the latest
weekly US inventory figures. "So whatever we present to the consultative
meeting, we will take into account these developments, particularly the stock
number and some of the figures coming out today," Barkindo said.

US inventory data released earlier Wednesday by the US Energy Information
Administration, statistics arm of the Department of Energy, showed a 5.1
million barrel week-to-week build in commercial crude inventories but draws of
5.2 million barrels in gasoline and 4.5 million barrels in distillates as the
US refinery maintenance season deepened.

The EIA said crude stocks, at 335.6 million barrels, were "well above the
5-year average for this time of year, which is around 294 million barrels."

International crude futures initially firmed in response to the draws in
product inventories but subsequently fell by more than a dollar as traders
weighed the implications of the build in crude stocks.

One proposal doing the rounds in OPEC has been to base the cut on average
media secondary source estimates of OPEC output over the past year or so. But
one OPEC source said it would make more sense to use more recent secondary
source estimates.

OPEC said Monday that its ten members with quotas--Iraq does not have
one--produced an average 27.6 million b/d in September, down from August's
27.73 million b/d and 400,000 b/d below the notional 28 million b/d ceiling.

It said total output in September, including Iraqi volumes, averaged
29.67 million b/d and warned that if production continued at this level,
consumer inventories would be overwhelmed.

OPEC's dithering over the past couple of weeks has not impressed world
oil markets, and analysts at Fimat said the Doha meeting served to highlight
the group's internal divisions rather than its unity. Fimat also drew
attention to the lack of public comment from OPEC kingpin Saudi Arabia.

"In the much trumpeted run-up to the event, the loudest signal may be the
silence of its most important member," Fimat said. The proposal to cut from
actual output "conveniently skirts the quota issue but places a double burden
on Riyadh, which has already quietly trimmed production," Fimat said, adding
that the meeting could backfire by showing up OPEC's problems rather than its
resolve.

ABN Amro said it believed ministers would confirm an output cut, but that
it might be hard to convince traders that it had a "watertight" deal.

What is needed, the bank said, is a 1 million b/d cut based on actual
prdouction rather than official but "defunct" quotas, and this means that OPEC
must detail the individual cuts for each country.

"But providing such detail risks ministers worrying about the
implications of how such 'temporary quotas' might be used in the future," the
bank said. "The alternative, a top-down temporary adjustment of the 28 million
b/d ceiling, would be less credible."

Platts calculations, using OPEC's secondary source estimates over the 12
months to September 2006, show an average output level of just under 9.3
million b/d for Saudi Arabia--some 200,000 b/d higher than the 9.1 million b/d
level that a senior OPEC delegate in early October said would be the baseline
for a Saudi cut of around 300,000 b/d.

If Saudi output is currently at 9.1 million b/d, a cut of around 300,000
b/d from the average level over the last 12 months would mean actual Saudi
output falling by just 100,000 b/d.

OPEC last cut production nearly two years ago, in December 2004, when
ministers agreed to reduce actual output by 1 million b/d to the then official
ceiling level of 27 million b/d.

Qatari oil minister Abdullah al-Attiyah, meanwhile, pointed out that
whatever was agreed this week in Doha would only be a "temporary decision."

"We will meet next again in Abuja and revise the whole situation," he
said, referring to OPEC's next scheduled meeting in the Nigerian capital in
mid-December.

Attiyah reiterated his belief that the expected cut would be made from
actual production levels, not the nominal output quotas for each OPEC member
country.

"Why we are now cutting is because demand is slow and demand for OPEC
oil, if you see the figures, is 200,000 b/d less than we expected and stock
levels are very high," he said.

"If you take my opinion, [the cut will be] from current production
because we have to send a real message to the market," he said.

For more news, request a free trial to Platts Oilgram News at
http://oilgramnews.platts.com or subscribe now at
http://www.platts.com/infostore/product_info.php?cPath=1_29&products_id=29

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.