Iran: too much oil available

AP
By GEORGE JAHN, Associated Press Writer

VIENNA – Iran's oil minister suggested Saturday that this weekend's OPEC meeting should decide to cut crude output, adding his voice to those in the organization who think supply has outstripped demand.

Other influential OPEC members have also said the group should reduce production. Still, their statements have left open whether they want to lower output quotas — or if they favor a solution less likely to hurt the struggling global economy by simply seeking to end overproduction by some nations above levels allotted to them.

"Of course there is" too much oil on the market, said Gholam Hossein Nozari, in response to a question from reporters on the eve of a ministerial meeting of the 12-nation Organization of the Petroleum Exporting Countries.

OPEC cuts agreed on since September were meant to take a daily 4.2 million barrels off the market. But there is general agreement that the members of the group under production quotas are still overshooting their joint target level of just under 25 million barrels by about 800,000 barrels a day.

There is no question the ministers want to bolster prices. While prices are off their low of around $30 just a few weeks ago, a barrel of crude still fetches less than a third of what it did over the summer. That is well below the break-even point for producing nations, which could affect not only their national budgets, but oil production as well.

But as the world grapples with the worst recession in decades, OPEC ministers realize they have to tread lightly. That is leading to increased expectations that any reduction in output that might be agreed on Sunday will come through increased attention to cutting overproduction instead of setting a lower overall target.

"It doesn't make sense that they should announce a further cut with the world in recession. They still have 800,000 barrels (of overproduction) to go," said London-based analyst John Hall.
Still two reports published Friday were expected to support traditional OPEC hard-liners such as Venezuela in their arguments that a further output cut is needed.

At the same time, they served as an indirect warning: drive up prices more and face even less demand in a sputtering global economy that already has cut back on consumption.

The International Energy Agency said world demand would drop for a second consecutive year for the first time since 1982-1983. In its closely watched monthly survey, the IEA cut its earlier forecast for demand this year by 270,000 barrels a day to 84.4 million barrels a day — 1.5 percent lower than a year earlier.

"The eventual resumption of global demand growth will largely depend upon much stronger economic performance than is currently the case" among the world's biggest energy consumers, said the agency, adding that the latest indicators are "not encouraging."

An OPEC report, meanwhile, noted that demand for oil produced by the cartel — which can supply more than a third of total world output — was expected to fall this year to 29.1 million barrels. That would be a substantial decline of 1.8 million barrels a day compared to 2008.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said OPEC is in a very bad spot.

"It would be unthinkable that anything can happen at this meeting that would lead to major sort of (upward) move in fuel prices, at least the kind of jolts we became accustomed to from 2005 to 2008," Kloza said. "This isn't the year for it. The world is broke and it's not using energy."

Some OPEC ministers were calling for cuts, nonetheless — while not specifying whether they favored setting lower target levels or through an end to overproduction.

"In the short term, we need to reach a base price of $70 a barrel," Venezuela's Rafael Ramirez said on arrival Friday to Vienna, adding OPEC will look at depressed demand, growing inventories and compliance with previous production cuts.

At the same time, he noted that OPEC needed to be "watching the world economic situation very carefully — it has become much worse than anybody ever imagined."

Prices have rallied from below $35 a barrel last month, with a barrel of benchmark crude fetching over $46 a barrel on the New York Mercantile Exchange Friday. Earlier in the session, prices peaked at $48.14.

"They're likely to keep the production target at the present level," said Ehsan Ul Haq, chief analyst at Vienna's JBC Energy. To compensate for overproduction by others, "Saudi Arabia has gone below its production target, and they expect 100 percent compliance from others" before considering cutbacks, he added.