Iran General NewsOPEC unlikely to cut supplies over Iran-U.S. tensions

OPEC unlikely to cut supplies over Iran-U.S. tensions


Bloomberg: OPEC, the producer of 41 percent of the world’s oil, probably won’t cut output at a meeting this week as mounting tensions between the U.S. and Iran bolster prices. By Maher Chmaytelli and Stephen Voss

March 13 (Bloomberg) — OPEC, the producer of 41 percent of the world’s oil, probably won’t cut output at a meeting this week as mounting tensions between the U.S. and Iran bolster prices.

The Organization of Petroleum Exporting Countries, whose members will meet in Vienna on March 15, lowered production at its two previous conferences. Oil ministers from Kuwait, Iran, Qatar, Algeria, Libya and Indonesia said in the past month more cuts aren’t needed after crude traded close to $60 a barrel for the past five weeks, reaching its highest in more than two months March 1.

“Prices are right about where OPEC wants them to be, so they will take no action,” said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. “Oil at $50 is too low for most of the members and $70 is seen as too high to be sustainable.”

The U.S. is at odds with Iran, the second-biggest producer in OPEC, over its nuclear research. Iran says it wants to generate electricity. The U.S. says Iran wants to build weapons.

OPEC agreed to reduce supplies at its two earlier meetings by a combined 1.7 million barrels a day to compensate for an expected seasonal decline in heating fuel demand next quarter. Warm weather sent New York oil futures as low as $49.90 on Jan. 18. Oil traded up 46 cents at $59.37 at 4:45 p.m. London time, 24 percent below a record $78.40 on July 14.

No Cut Needed

Kuwaiti Oil Minister Sheikh Ali-Jarrah al-Sabah and Qatari Oil Minister Abdullah bin Hamad al-Attiyah both said in interviews yesterday OPEC doesn’t need further cutbacks.

“If there’s compliance with the previous cuts, the market will be balanced and there won’t be a need to change anything,” Iran’s OPEC governor, Hossein Kazempour, said in Vienna today.

Ali al-Naimi, the oil minister for Saudi Arabia, OPEC’s biggest and most influential producer, declined to comment to reporters when he arrived in Vienna today.

OPEC completed in February about 60 percent of the supply cuts it agreed to last year at meetings in Doha, Qatar, and Abuja, Nigeria. The 10 OPEC members subject to the agreement planned to reduce production to 25.8 million barrels a day from September’s 27.5 million. They pumped about 26.5 million barrels a day last month, Bloomberg estimates show.

Compliance is “very good,” United Arab Emirates Oil Minister Mohamed al-Hamli, who is the OPEC president this year, told reporters March 12 in Dubai. “It’s improving all the time.”

IEA’s Stockpile Warning

The International Energy Agency, an adviser to 26 oil- consuming nations, said OPEC may need to raise exports in coming months, warning that oil stockpiles in industrialized countries are headed for their biggest first-quarter decline in 10 years because of cold February weather and OPEC supply cuts.

Oil inventories in Organization for Economic Cooperation and Development nations have dropped by more than 1.26 million barrels a day during the first two months of the year, the Paris-based agency said in a monthly report today.

“So far, most signals by OPEC suggest that there will be no change in output targets at its March 15 meeting,” the IEA said.

While OPEC has the “flexibility” to cut supply further, the IEA said that “in reality, stock trends and prices are signaling that higher OPEC exports will be needed in the months ahead.”

Global demand is expected to rise 1.8 percent this year, to 86 million barrels a day, the IEA said today, virtually unchanged from its previous assessment.

Including Iraq and Angola, the two members that haven’t cut output, all 12 OPEC nations pumped 29.89 million barrels a day last month, Bloomberg estimates show. Saudi Arabia, OPEC’s biggest producer, and Iran pumped 8.55 million barrels and 3.82 million barrels a day, respectively, both down from the month before.

Carrier Forces

The U.S. has two aircraft carriers, the USS John C. Stennis and USS Dwight D. Eisenhower, in the Arabian Sea, close to the Straits of Hormuz. The last time the U.S. had two carriers in the region was in 2003, for the Iraq invasion.

Ensuring oil tankers pass uninterrupted through Hormuz is one of the missions for the two battle groups in the region, Captain Brad Johanson, the commander of the Stennis, said in a March 7 interview. About a fifth of the world’s oil is shipped through the straits, which separate Iran from the Arabian Peninsula.

An attack on Iran by the U.S. or Israel would send oil higher, Charles Robertson, the chief economist for emerging Europe, Middle East and Africa at ING Bank NV, said in a London interview.

“There’s an awful lot of speculation in the last few weeks that it’s possible there will be a strike,” Robertson said.

U.S. Defense Secretary Robert Gates said Feb. 2 the U.S. isn’t planning to attack Iran, and Israel has said it favors a non- military solution. Robert Ebel, the chairman of the energy program at the Center for Strategic and International Studies in Washington, says concern about Iran is overblown.

“It’s a show of strength,” Ebel said. “I wouldn’t think it is a prelude to an invasion or a war.”

Increased Output

OPEC members will produce about $635 billion worth of crude oil this year, based on February’s rate of production and OPEC’s latest benchmark oil price. That’s about double the annual gross domestic product of Austria, where OPEC’s headquarters is based.

“OPEC does not need to make any further output cuts to support oil prices,” Leo Drollas, the deputy executive director of the London-based Centre for Global Energy Studies, said in a monthly report.

During the past two years, oil supply from non-OPEC countries didn’t rise as much as the IEA and other analysts had expected because of U.S. hurricane damage and delays at several large energy projects, such as BP Plc’s Thunder Horse platform, that have to compete for manpower and equipment.

The CGES expects OPEC’s daily crude output to rise to 31 million barrels in the final quarter of 2007, from 30.2 million barrels this quarter, led by higher Angolan supply, and Brent crude to rise to $60.90 a barrel, from $56.60, over that period.

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