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Last Updated : Jun 07, 2011 08:27 AM IST | Source: Reuters

OPEC may do no more than cosmetic oil increase

Saudi Arabia and its Gulf Arab allies may struggle to push through more than a cosmetic increase in oil supplies at a meeting of the OPEC cartel this week.

Saudi Arabia and its Gulf Arab allies may struggle to push through more than a cosmetic increase in oil supplies at a meeting of the OPEC cartel this week.

Worried that crude prices near USD 115 a barrel are undermining economic growth, Gulf producers including Kuwait and the United Arab Emirates favour an increase in output when the Organization of the Petroleum Exporting Countries meets on Wednesday.

But delegates gathering in Vienna say that a deal to do anything more than just close the gap between OPEC's out-of-date official production target and actual supplies could prove difficult.

That gap stands at about 1.4 million barrels a day - the difference between OPEC's latest estimate of its output, 26.2 million bpd, and the 24.84 million bpd formal target set in December 2008.

"We will at least close the gap between what we're producing and official quotas. Whether we add more oil on top or not is still under discussion," said a Gulf OPEC delegate.

"We'll legitimise the difference but there is no need to add extra oil because demand is not as strong as we thought," said a delegate from another Gulf OPEC country.

That won't be enough to satisfy importing countries.

"The issue is not only quotas, but real production," said Nobuo Tanaka, Executive Director of the International Energy Agency.

Iran, Venezuela Oppose

Squaring off against Saudi Arabia are OPEC's leading price hawks Iran and Venezuela.

Represented by just-appointed caretaker oil minister Mohammad Aliabadi, a close ally of President Mahmoud Ahmedinejad, Iran is expected to take a tough line against any output increase.

"There is no need to increase OPEC production," said Iran's envoy to OPEC in Vienna, Mohammad Ali Khatibi. "It is not fair that the market situation changes to over-supply."

Iran's closest ally in OPEC is Venezuela, recently sanctioned by the United States for supporting Iran's energy sector.

"We think that at the moment the market is in balance," said Venezuelan Oil Minister Rafael Ramirez said. "We are not concerned about supply."

Price Rations Demand

OPEC may be moving too late to prevent fuel inflation from undermining the fragile recovery in the West.

In meetings last year it agreed to do nothing and blame speculators when prices sailed beyond the USD 75 a barrel Saudi says it favours hitting a high in April this year of USD 127.

Signs that high prices are rationing demand have been evident for weeks. That increases the risks associated with a bigger increase in output.

"Demand in Asia is not as strong as we expected and US data is not good," said the second Gulf delegate.

"Right now we're starting to get some signals of demand destruction," said Olivier Jakob, analyst at Petromatrix. "I think it would make sense somehow for OPEC to bring back prices to USD 75-USD 80 per barrel."

War-torn Libya will send an official, Omran Abukraa, to represent it at OPEC after the defection of its leading oil official Shokri Ghanem.

Libyan supplies were cut when rebellion broke out in February. Tripoli - normally a hawk on prices - for once won't have much say over OPEC policy.

First Published on Jun 7, 2011 08:15 am