OPEC May Boost Output to Confront Rivals, Raise Cash (Update1)
By Sean Evers
Vienna, June 20 (Bloomberg) -- OPEC may begin pumping more oil as early as next month to keep up with rival suppliers and raise additional revenue, analysts said.
Russia and Norway plan to end six months of output cuts and cooperation with the Organization of Petroleum Exporting Countries on July 1, increasing world supply at a time when demand is rising at half of normal levels. A drop in the U.S. dollar has weakened OPEC further, because its oil sales are priced in the currency.
``Non-OPEC production and a falling U.S. dollar are two factors that OPEC cannot afford to ignore,'' said Jassem al- Saddoun, managing director of the Kuwait-based Al-Shall economic research center. ``OPEC will not tolerate a further loss in market share to non-OPEC if prices fall below $20 a barrel.''
Oil prices may be poised to slide after a 25 percent jump this year to almost $25 a barrel, analysts said. For oil importers such as the U.S., lower energy bills would free up cash for consumers and help unprofitable companies such as Delta Air Lines Inc. and truckers including Roadway Corp.
Rather than increase production quotas, now at a 10-year low, members will probably cheat more on their targets. OPEC last month pumped 1.4 million barrels more than promised and has met its goal in only four months since 1998, according to Bloomberg estimates.
Brent crude oil in London was recently up 15 cents, or 0.6 percent, at $24.70 a barrel. Qatar, OPEC's smallest member, yesterday urged producers to maintain current output quotas until December.
OPEC officials will meet today and tomorrow in Vienna with counterparts from non-OPEC nations Russia, Norway, Oman, Mexico, Egypt, Yemen, Syria, Kazakhstan and Angola to lobby for continued cooperation to limit supplies and bolster prices.
Plan Backfires
Saudi Arabia, home of the biggest Middle East economy, is facing its worst recession since 1985 because the year's gain in oil prices isn't offsetting lower production.
The 11-member group now pumps about a third of world supply, down from 50 percent in 1974 after the Arab oil embargo encouraged exploration. OPEC's success in lifting prices between 1999 and 2001 is now backfiring, as billions of oil-industry profit spurred developments in non-member countries.
Russia and other non-OPEC states will raise oil production this year by more than 1 million barrels a day, the International Energy Agency estimates. The increase may lead Russia to replace Saudi Arabia as the world's largest crude producer.
OPEC wants to maintain its cooperation with rival exporters because demand is rising by about 420,000 barrels a day, less than half the level seen during the 1990s, the IEA has estimated.
``Talking is better than fighting,'' said Abdul Rahman al- Kheraigi, an OPEC spokesman. ``The better understanding we have of each other's position, the better we can manage the oil market.''
The group's biggest producer, Saudi Arabia, which uses oil revenue, not taxes, to balance its budget, has ruled out raising production quotas during the summer to keep prices within a target range of $22 to $28 a barrel while demand remains weak.
Russian Challenge
Russia is spending billions to rebuild its industry after the collapse of the Soviet Union. Russia in 1991 was the world's largest oil producer, pumping 9.3 million barrels a day, compared with 7.1 million a day last year.
Russia also is encroaching on traditional Saudi customers. AO Yukos Oil Co. has sent a cargo of Russian crude into the U.S., investigating the possibility of further sales.
``Saudi Arabia is feeling slightly isolated,'' said Bruce Evers, an analyst with Investec Henderson Crostwaite. ``Saudi-U.S. relations are not what they used to be, while Russian-U.S. relations have never been better.''
The rift between Russia and OPEC, and especially with Saudi Arabia, shows little sign of healing. Last November the animosity between the two countries erupted when the desert kingdom said the oil market was in crisis and described Russia's refusal to limit supplies as ``unreasonable.''
``Saudi Arabia is likely to make a stand on market share if oil prices fall after Russia and Norway increase production next month,'' said Khan Zahid, chief economist at Saudi Arabia's Riyad Bank. ``OPEC could open the taps to get them back into line.''
