Vienna, Austria (AP) - OPEC will likely hold its oil production steady for now, but it’s casting a wary eye on prices as the cost of crude plummets to five-month lows.
The Organization of Petroleum Exporting Countries, meeting in Vienna on Monday, was expected to maintain its output quota of 28 million barrels a day. With supplies outstripping demand but markets still jittery, key members of the 11-nation cartel said they see no reason to tighten or loosen their taps, and OPEC’s own advisory panel urged the group to keep production at current levels.
But tumbling prices have grabbed OPEC’s attention, and Iran’s oil minister hinted that a cut in output targets could come before winter in the Northern Hemisphere. Unofficially, there was talk of drawing up an action plan if prices dip below $60 a barrel, a level that could prompt the cartel, now pumping at close to capacity, to start tightening its taps.
Iran’s Kazem Vaziri Hamaneh told reporters Monday that cartel members worried about falling prices would debate the option of a cut in output by the end of the year. “We’re going to discuss it,” he said, adding that he doesn’t want to see crude fall below $60 a barrel.
Crude dipped below $66 on Monday amid expectations that OPEC would leave its production targets untouched. Light, sweet crude for October delivery was down 68 cents to $65.57 a barrel in electronic trading on the New York Mercantile Exchange.
Prices have plunged since light sweet crude hit a record $78.40 in mid-July, just after fighting erupted in Lebanon. Each $10 drop in price, analysts say, translates into a 25-cent drop at the gas pump.
“This it the time to talk about” an eventual cut, OPEC President Edmund Daukoru, Nigeria’s oil minister, said Monday. “Definitely we will not be producing more, that’s for sure.”
Venezuelan oil minister Rafael Ramirez also said the group needed to consider scaling back production at some point, noting that crude inventories “are above normal levels.”
OPEC, which meets about 40 percent of the world’s demand for crude, wants to see whether prices are in a free fall or are merely reacting to high inventories, the cessation of hostilities in Lebanon and progress in talks between Iran and Western powers trying to contain its suspect nuclear program.
“Crude oil volatility appears to have subsided over the past year, due to ample supply, rising OPEC spare capacity, plentiful strategic reserves and abundant commercial crude inventories,” Daukoru said in his opening address Monday. “Security of demand must go hand-in-hand with security of supply as a means of achieving market stability.”
Excluding Iraq, which is no part of OPEC’s quota system, the group is now pumping about 27.5 million barrels a day-half a million barrels under its target- said Ali Naimi, oil minister of Saudi Arabia, the world’s No. 1 oil exporter.
Naimi said Monday he was “very optimistic” about global oil demand next year, playing down concerns that world economic growth may be slowing and characterizing recent price drops as insignificant “blips.”
Supplies remain ample despite concerns over Iran, losses from BP PLC’s leak-prone Alaskan oil pipelines, chronic outages in Iraq and attacks on oil infrastructure by militants in Nigeria, Africa’s biggest producer. US inventories are at their highest levels since 1998, the Dept of Energy reported last week.
Iraqi oil minister Hussain al-Shahristani said Monday his government will reinforce its military presence in the north of the country to protect oil facilities targeted by saboteurs. Iraq produces more than $2 million barrels a day.
Jason Schenker, an analyst with Charlotte, NC-based Wachovia Corp, predicts global demand for crude will slacken as economic growth slows, pushing prices down even further, especially if the US, as some economists forecast, slips into recession next year.
“I think there’s still room for crude to fall,” he said. “There’s no shortage of oil anywhere. Right now, this is a fundamentally well-supported market. The supply side is very lush.”
Iran’s influence on prices has eased, Schenker said, because Tehran has said it would not cut off oil supplies and there is little expectation that the UN Security Council could overcome resistance from Russia and China and impose significant economic sanctions.
“You’re likely to see slowing growth, and with it, a slackening demand for oil,” he said.
Analysts said price could face further pressure in 2007 if production from non-OPEC nations such as Angola, Brazil and Caspian Sea countries like Azerbaijan rises significantly as expected.