Oil nations resist call for production cut
Oil-producing nations are expected to dismiss a call by Venezuelan president Hugo Chavez for a production cut as he hosts an Opec meeting.
Chavez appears to be a lone voice as other countries will almost certainly want to keep output unchanged to temper soaring fuel prices, experts say.
Exacerbated by the Iranian nuclear dispute, oil prices remain above $70 a a barrel and the US, the world’s largest energy consumer, is expected to drive up demand in coming months when it heads into summer driving and hurricane seasons.
Analysts say the Organisation of Petroleum Exporting Countries is likely to avoid being seen as trying to drive up prices any further, when there are already mounting fears of disruptions to the oil supply.
“It would be a very bad signal to cut quotas at $70 to $71 per barrel,” said SG Securities analyst Frederic Lassere in Paris. “From a political point of view … it would be very, very difficult to justify to the consumers.”
Opec has maintained its official output ceiling unchanged at 28 million barrels a day since July 2005.
The United Arab Emirates’ oil minister, Mohamed al-Hamili, said he expected Opec to maintain that output when it holds its one-day meeting on Thursday in Caracas.
The 11-nation producers’ group, however, may find it difficult to take any action to moderate current oil prices.
Maintaining or boosting output does little to address the factors behind the current run-up, which include a lack of refining capacity, a larger global run on commodities and geopolitical tensions, Lassere says.
“I don’t see what kind of decision would have any impact on the price in the current context,” he said.
“The market is not asking for more crude.”
Venezuelan oil minister Rafael Ramirez justified a production cut yesterday, saying the market was well supplied and oil inventories above historical highs.
He said Opec should “at least maintain” output, but quickly added: “If we were to base it on the fundamentals of the market, we should propose a production cut.”
He later acknowledged that oil prices were currently above acceptable levels, but said that was occurring for “reasons that are fundamentally geopolitical”, like violence in Iraq and Iran’s nuclear issue.
Also under close watch as Opec gets under way will be a meeting on Iran’s nuclear impasse the same day by top international negotiators in Vienna, Austria.
US, Russian, Chinese and European officials are expected to sign off on a package of incentives to reward Iran if it gives up uranium enrichment. But the agreement could also open the way for economic sanctions if Tehran refuses.
Kamal Daneshyar, chairman of the Iranian parliament’s energy committee, warned that Tehran may retaliate to sanctions by closing the Strait of Hormuz, through which two fifths of the world’s oil supplies pass, to other oil exporters, a move that he said could drive prices as high as $250 a barrel.
