Vienna (Platts)--11Jun2012/649 am EDT/1049 GMT

World oil markets are currently oversupplied and the surplus has led to a "severe" and rapid decline in oil prices, OPEC's Iraqi president Abdul Karim al-Luaibi said Monday.

"...it is very clear that there are tremendous surplus quantities that have led to his severe decline in prices in a very short time span. Obviously, this does not serve anyone. In our opinion, stable prices are best for all," Luaibi told reporters in Vienna, where the oil producer group will meet on Thursday to set output policy for the rest of this year.

Oil prices have plunged over the past three months. North Sea Brent traded as high as $128.40/barrel on March 1 but was trading below $100/b for much of last week. Having closed at $99.47/b on Friday, Brent has climbed back above $100/b Monday, buoyed by the weekend agreement among eurozone finance ministers to lend Spain up to Eur100 billion to support its banks.

Luaibi was asked what oil price Iraq would like to see.

"I have said previously, that most economic analysts believe that prices between $100 and $120 are reasonable and acceptable prices that serve the global economic engine," he said.

Despite having described oil markets as suffering from a "tremendous" supply surplus, Luaibi stopped short of saying that OPEC needed to reduce output below the 30 million b/d ceiling agreed in December. He said any OPEC decision on output levels would be made after ministers had studied the market situation as assessed by OPEC's own economic experts.

"The 30 million was agreed at the last meeting and was approved after a careful study of the global market. This is what will happen over the next few days. OPEC will have a technical report and on the basis of that report, OPEC needs to adopt the appropriate decision," he said.

TECHNICAL REPORT

He declined to give a figure for the level of oversupply, saying: "Of course we have an idea, but we cannot discuss figures ... the organization today and tomorrow will be preparing the technical report that will include all these details and will form the basis for an appropriate decision by the ministers."

Luaibi said several factors had caused oil prices to fall, including surplus production, lower demand for crude because of refinery turnarounds, the crisis in the eurozone and geopolitical developments.

"This slide is due to several reasons, among them the surplus production. And also in previous months, we have seen less demand because of refinery maintenance and less consumption. There are reasons due to the eurozone crisis in countries like Spain and Greece. All these reasons and others in my opinion led to this slide in oil prices. In addition to the positive result of the P5+1 meeting in Baghdad recently on the Iran nuclear crisis," he said.

However, he added, "We expect to see an increase in demand in coming months and this will be discussed at the meeting."

Luaibi said all member countries were in agreement on the need for OPEC to contribute to market stability.

"We do not believe that there is one member country that does not desire the same," he said. "However I said earlier, the current situation is not stable. What happened in Libya, what is happening in Sudan, Syria and Yemen and the Iranian nuclear crisis all of these factors have created this atmosphere of turmoil in the market. Certainly every OPEC member country is in agreement on the need to stablize the market in terms of fundamentals and price."

Luaibi was asked whether Saudi Arabia had given OPEC a commitment to reduce its output, currently around 10 million b/d, now that prices had fallen back, but declined to address the question directly.

"Certainly, all OPEC countries have a moral obligation to adhere to the decision," was all he would say.

Luaibi said that, regardless of what decision OPEC may take, a return to individual output quotas may be beyond the scope of this week's talks.

QUOTAS

OPEC's current ceiling does not include individual country quotas and when asked whether OPEC would bring back allocations, Luaibi said: "It may be difficult at this meeting because, as I said, there are factors that are beyond the organization's control. Certainly, in future meetings, we hope that the problems that we are facing now in several countries will be resolved and that the market will stabilize so that the organization can set new quotas."

He also said OPEC was not solely responsible for the current oversupply in the market and that independent producers had also played a part in boosting supply. Supply from the US alone had risen by 600,000 b/d and this was also contributing to negative sentiment, he said.

A Platts survey of OPEC and oil industry officials and analysts on Friday estimated that OPEC pumped 31.75 million b/d in May, 1.75 million b/d more than the 30 million b/d ceiling agreed by ministers in December.

--Staff report, newsdesk@platts.com

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