Oil Producers May Compel OPEC to Cut Supply
By Chika Amanze-Nwachuku with agency report, 09.03.2008
There are indications that major oil producers may compel Organisation of Petroleum Exporting Countries (OPEC) to cut supply when the group meets on September 9, in Vienna, Austria.
This was sequel to the sharp drop in crude oil price to below $110 per barrel yesterday, after reaching a record high of $147.42 per barrel on July 11.
Iran, world's fourth-largest crude producer. stated yesterday that OPEC may need to cut oil supplies by about 1.5 million barrels per day (bpd), or nearly five per cent, to balance global markets by early next year.
Iran's OPEC Governor, Mohammad Ali Khatibi, in an interview with Reuters yesterday noted that the market currently is oversupplied and will definitely have an impact on price and investments in the oil industry.
He said OPEC should consider a two-step plan to cut supplies at its September meeting.
"The current market is not balanced, it is oversupplied. Oversupply cannot continue for a long period. It will definitely have an impact on the price and on investments in the oil industry," he said in an interview with Reuters.
According to him, the first step in balancing supply and demand would be for members that are pumping above their informal target to cut back to the agreed level.
The second step, he said, would be for a formal output cut and could be left until the producer group, supplier of over a third of the world's oil, meets again in Algeria in December.
"We can take this step later if we consider it necessary. There are so many factors that are uncertain right now, we may need to do this in December. By then, it should be easier to measure how much the global economic slowdown has impacted demand and how much oil producers outside OPEC would pump over winter. That would give OPEC a clearer idea of what it needs to supply to match demand.
"As things stand, demand for oil from OPEC was expected to be around 31 million bpd in the first quarter of 2009, compared to current output of around 32.5 million bpd. Demand would slip around one million bpd to 30 million bpd in the second quarter, but there would be no need for OPEC to trim further then," he said.
Meanwhile, Iranian Oil Minister, Gholam Hossein Nozari has called on OPEC to discuss quota-busting by some members at the September 9 meeting.
Speaking with the official IRNA news agency, the Minister said oil supply should be proportionate to demand and that control of excess supply is an issue which should be addressed at the upcoming OPEC meeting.
"The oil supply should be proportionate to demand and control of excess supply is an issue which should be addressed at the upcoming OPEC meeting. Some OPEC members are providing the market with excess supply and producing more than their OPEC quota.
Therefore, at the next meeting, members will request a stop to the excess supply," he said.
Nozari said "Excess supply of oil affected prices, and it is not only Saudi Arabia which has excess supply, but there is an increase in supply from other members that has affected prices. $100 a barrel is "a minimum" for oil prices."
Crude oil price slumped below $110 a barrel yesterday, on signs that Hurricane Gustav may spare oil facilities off the US south coast.
