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OPEC Divided on Bigger Supply Cuts

Reuters
Sunday, 3 Dec 2006 | 11:08 AM ET

CAIRO - OPEC ministers were divided on Saturday on the need for deeper oil-supply cuts, with some concerned about high fuel stockpiles and others reluctant because crude prices are holding firm above $60.

Saudi Oil Minister Ali al-Naimi said the market was "significantly" out of balance because of swelling global inventories and that 100 million barrels should be removed.

But Libya's top energy official said markets seemed to be nearing a balance and he did not feel there was a need for OPEC to add to the 1.2 million barrel-per-day cuts agreed in October.

"There are some people who are worried about oversupply in the first quarter and therefore believe there is a need for more cuts in production. These people, who include Saudi Arabia, will look at the stock level in the market as a guideline and not the oil price...," a senior OPEC delegate told Reuters.

"However, there are some countries within OPEC who are looking at oil prices only and not the fundamentals of the market. These countries might disagree with the idea of further production cuts," the delegate said, adding that a final decision would be taken when OPEC meets December 14 in Nigeria.

Clearing Out Supply

OPEC, which pumps more than a third of the world's oil, wants to clear any supply overhang by the second quarter of 2007, when winter ends and demand falls for its oil.

Qatari Energy Minister Abdullah bin Hamad al-Attiyah agreed with the Saudi assessment that inventories were "very high," but also did not say whether deeper cuts were needed in December.

OPEC President Edmund Daukoru has said the group would probably trim again, but the size of the reduction would depend on prices and inventory levels. Venezuela's oil minister has said Caracas could propose a further cut of 500,000 bpd.

Iran's oil minister said OPEC may cut output again if prices fell. "There is such a possibility if the prices fall," Kazem Vaziri-Hamaneh said. "This cannot be predicted right now."

Since hitting a 17-month low of $54.86 on November 17, U.S. crude prices have rallied to above $63 on Friday.

Kuwait's oil minister has said OPEC should not make additional output cuts with U.S. crude above $60 a barrel.

And Libya's Shokri Ghanem said he did not believe the excess in stocks would have a big impact on oil markets "within the framework of current prices," which he said were acceptable.

"For me, it doesn't look at this moment that a cut is necessary, but we have to see," he told reporters in Cairo.

U.S. Worried About Cut

The prospect of another supply cut by OPEC has raised alarms in the U.S., the world's leading consumer.

Energy Secretary Sam Bodman on Friday advised against a cut and the Energy Information Administration said OPEC would not have complete data about U.S. inventories by its December meeting, making any further decisions on cuts risky.

The United Arab Emirates' oil minister said OPEC needed to assess the impact of its last cuts before taking a decision.

A Reuters survey showed the 10 OPEC members with output curbs had enforced two thirds of the pledged cuts in November. Led by Saudi Arabia, they cut output by 785,000 bpd, but were still pumping nearly 600,000 bpd over a 26.3 million bpd target.

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