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OPEC Unlikely to Be Moved by $100 Oil

Oil prices of more than $100 a barrel are unlikely to convince OPEC ministers meeting in Vienna this week to raise output, which they say is more than adequate.

Oil Pump
Oil Pump

Consumers, led by top fuel burner the United States, have urged the Organization of the Petroleum Exporting Countries (OPEC) to produce more oil in an attempt to cool prices and to limit economic slowdown.

U.S. crude hit a new record of $103.95 on Monday.

OPEC ministers have said prices have been driven by factors beyond their control, including a weak U.S. dollar and political tension, and not by a lack of oil.

OPEC President Chakib Khelil said the group's two options when it meets on Wednesday in Vienna were to keep output steady or to reduce it.

"I don't think OPEC would consider increasing production because then we would be increasing to meet demand that doesn't exist," Khelil told reporters.

Given that inventories are already high, he said an output increase would not lower prices.

An OPEC source said no change would be a logical outcome, but the strength of oil prices meant ministers might talk about increasing production slightly.

"The fundamentals do not support this, but the price is clearly too high," the source said.

Another OPEC source said there was an argument for leaving output unchanged for the rest of the year.

The latest government data showed U.S. crude inventories had risen for a seventh week in a row, while gasoline stockpiles reached their highest for 14 years.

Political Tension

Some of the strength in the oil market derives from political tension involving OPEC nations.

OPEC members Venezuela and Ecuador have sent troops to their borders with Colombia after Colombia bombed and sent troops inside Ecuador at the weekend.

Venezuela is also in dispute with U.S. oil major Exxon Mobil , which has won court orders freezing up to $12 billion of the country's assets.

Ecuador will put Venezuela's case to Wednesday's OPEC meeting to seek support in its dispute with Exxon Mobil, Ecuador Oil Minister Galo Chiriboga said.

OPEC's most influential member Saudi Arabia would not be led on the outcome of this week's meeting.

But the kingdom's Oil Minister Ali al-Naimi said in an interview published at the weekend prices would not fall below $60-$70 a barrel as this was the minimum level at which alternatives to conventional oil were economically viable.

OPEC, which pumps more than a third of the world's oil, last met on Feb. 1 when it left output unchanged. It has not agreed a formal increase since September last year.

A Reuters survey found OPEC output fell slightly in February, the first deline since August last year. The group is now pumping only 110,000 barrels per day above its agreed target.

Any formal deal on Wednesday to hold supplies steady would leave latitude for quietly adjusting output to reflect demand. In addition, ministers are likely to call an extraordinary meeting in the next month or two to review the situation, delegates said.