Search the Internet          Tips  Sites: Finance, Investment

Opec to hold output steady, whatever Iraq outcome

Opec ministers gathering to review oil production policy next week said on Sunday they would leave output unchanged, despite the chance that UN-supervised Iraqi supplies remain out of the market.

Iraq a month ago suspended deliveries under the UN's oil-for-food exchange, but oil prices since have fallen sharply, making the result of Tuesday's meeting of the Organisation of Petroleum Exporting Countries a foregone conclusion.

"There is no reason for us to increase production because there is lots of crude in the market," said Opec president Chakib Khelil.

"The market is sufficiently supplied with oil and while that situation continues no supply increase is justified while prices remain in the band," said Venezuelan oil minister Alvaro Silva.

Opec's basket of crudes was valued last at $24.39 a barrel, near the bottom of the group's preferred $22-$28 price band.

Opec may not even bother waiting for the outcome of Tuesday's UN vote on revised Iraq sanctions before approving a no-change policy leaving production for 10 members at 24.2 million barrels daily.

"We could do it on Tuesday or, if the UN vote is late, ministers may prefer to wait until Wednesday morning," said a delegate.

Iraq's next move

Far more difficult to predict than Opec policy is the outcome of events at the United Nations.

The Security Council is obliged to agree some form of new resolution to replace a short-term extension of the current measures that expire on July 3.

Russia, to applause from Baghdad, has threatened to veto an Anglo-American proposal calling for an overhaul of the Gulf War embargo against Iraq.

As a fallback position, the Security Council would instead have to extend the oil-for-food exchange -- though whether for the normal six-month period or just three months remains to be decided.

While a six-month renewal would appear to meet Iraq's conditions for the renewal of oil sales, Western diplomats have said any extension could include a provision for further negotiations on a sanctions revamp.

Iraqi officials say that would be enough for it to keep a block on its two million barrels daily of crude sales.

Clues on Baghdad's next move are not likely to come from Vienna this week because oil minister Amir Rasheed will not be attending.

Oil's recent price slide, lopping $4 from crude prices in two weeks, comes in the wake of a stronger-than-expected second-quarter build in crude and petroleum product stocks.

Energy economists blame the adverse impact of the US economic slowdown, now being felt globally, on petroleum consumption.

Gap until September

Any lengthy outage of Iraqi deliveries, worth nearly five percent of world exports, could slow the stockbuild and prompt a quick rebound in oil prices.

That will give food for thought to Opec ministers who want to avoid another extraordinary meeting before their next scheduled gathering at the end of September.

While most in Opec are more worried about the potential for more downside price risk, leading producer Saudi Arabia is just as concerned to avoid a repeat of last year's price spike.

Riyadh is sensitive to accusations that it allowed crude prices to get out of hand last autumn by failing to turn up the taps quickly enough, contributing to this year's global economic downturn.

"A well supplied oil market and a fair price that is not detrimental to world economic growth are common goals that we all seek," Saudi oil minister Ali al-Naimi said in a speech last week.

Opec sources said that if more oil is needed before the September 26-27 conference then it can be triggered by agreement over the telephone.

The group's price band mechanism, authorising an extra 500,000 barrels daily if prices go above $28 for 20 days, is one option. That, though, might prove too little too late, only going part of the way to providing the volumes needed to compensate for any continued Iraqi shortfall.

Tell us what you think of this report