Replies to post #123 on Oil Energy Thread (oih)

[madrose1]

OPEC Will Probably Keep Oil Above $65 Current Production Level,

By Stephen Voss

Sept. 8 (Bloomberg) -- OPEC, the producer of 40 percent of the world's oil, is likely to keep production at current levels when its members meet next week, increasing the chances crude will stay above $65 a barrel for the rest of the year.

That's the unanimous view of 18 oil traders, brokers and analysts surveyed on Aug. 31, who predicted oil ministers will vote to keep quotas when they meet in Vienna. Officials from Iran and Nigeria said in the past three weeks that OPEC members, apart from Iraq, should keep their target of 28 million barrels a day.

The Sept. 11 meeting of the Organization of Petroleum Exporting Countries comes as high oil prices curb consumer spending from Australia to the U.S., prompting calls by politicians to reduce reliance on OPEC crude. Iran, Venezuela, Nigeria and Indonesia are all failing to produce as much oil as planned.

``OPEC will look at the market, they'll be happy with what's going on,' said Leo Drollas, deputy executive director of the London-based Centre for Global Energy Studies. ``Prices are high and their revenues are soaring. They feel the prices aren't affecting the world economy so there's no need to change anything, including production quotas.'

Output for the 10 members outside of Iraq was 27.9 million barrels a day in August, below the planned 28 million a day, according to data compiled by Bloomberg. Members last surpassed the target in February.

Oil in New York touched a record $78.40 a barrel on July 14, fueled by concern that fighting in Lebanon between Israeli and Hezbollah forces would spread in the Middle East, the source of 30 percent of the world's crude. Supply disruptions in Nigeria because of militant attacks and a dispute with Iran over its nuclear program also bolstered prices.

OPEC's Struggles

``OPEC still has the capacity to influence the market, but not on all occasions,' said Sadek Boussena, a former OPEC president who is now an adviser to French bank Societe Generale SA. ``The unpredictable factor is geopolitics. We can't predict what can happen in Nigeria, Iraq and Iran.'

Oil has since slipped about 14 percent as concern eased about disruptions from Iran, the world's fourth-biggest producer, and as the fighting in Lebanon ended. German Chancellor Angela Merkel on Sept. 6 said the nation won't back a military strike on Iran.

A benign Atlantic hurricane season has damped concern that oil and natural gas from platforms in the Gulf of Mexico will be disrupted. By this time last year, six hurricanes had developed, including Katrina, which shuttered most oil and gas production in the Gulf.

Member Views

Iran's OPEC governor, Hossein Kazempour Ardebili, told the state-run Iranian Students News Agency Sept. 2 he expected quotas to remain unchanged.

``OPEC will continue its policy of supplying the market above demand for this organization to avoid accusations of driving prices higher,' he said.

Edmund Daukoru, OPEC president and the Nigerian oil minister, said on Aug. 17 in Brazil the group won't lower the target this year.

Some members, including Saudi Arabia, OPEC's largest producer, exceed their official quotas to make up for shortfalls by other nations. Saudi Arabia produced 9.38 million barrels a day in August, according to the Bloomberg data, surpassing its quota of about 9.1 million a day. Saudi production peaked at 9.78 million barrels a day in October 2004.

``Saudi Arabia has cut back some of its heavier crude production,' as has Iran, because they can't sell it, said Kevin Norrish, an energy analyst at Barclays Capital in London, who expects oil to cost $70 to $80 next year. ``That's a symptom of a lack of refining capacity to handle those grades.'

Iran Conflict

Algeria pumped 54 percent more than its quota in August, while Indonesia was 41 percent below, according to the data compiled by Bloomberg.

``The quotas don't really reflect the potential of various countries,' Drollas said.

Increasing demand in countries such as China has also been driving prices, while spare production capacity has declined because OPEC isn't investing enough, Drollas said.

Traders are divided on whether Iran would curb oil exports. United Nations members including the U.S. are considering sanctions in an effort to contain the country's nuclear ambitions. Iran, which last week defied a UN demand to halt uranium enrichment, said Sept. 6 it's ready to retaliate against any attack.

Even a ``symbolic cut' would push prices up, Norrish said.

A two-day energy seminar in Vienna will follow the formal OPEC meeting, with ministers and executives from companies including Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and Saudi Aramco scheduled to attend.

To contact the reporter on this story: Stephen Voss in London at [e-mail]