Darius Snieckus
OGJ Online
VIENNA, Mar. 16—The range of collective production cut widely anticipated to be agreed Friday by members of the Organization of Petroleum Exporting Countries has been narrowed to between 800,000-1.2 million b/d, according to industry analysts at today's OPEC ministerial meeting.
Ministers from the 10 voting member states of the organization will meet later today at the OPEC secretariat to continue discussions aimed at firming up a final quota cut, after informal talks broke up with conflicting reports as to whether or not an agreement had been reached.
Iranian Petroleum Minister of Petroleum Bijan Namdar Zangeneh said OPEC had agreed to a production cut, the second in as many months, but refused to specify what the exact magnitude of that reduction would be. Qatar's Minister of Energy Abdullah bin Hamad Al Attiyah emerged from today's meeting saying the organization's ministers were "working around a figure."
Expectations yesterday were that OPEC would agree to a production cut of between 700,000-1.5 million b/d.
However, Leo Drollas, deputy director of the London-based Centre for Global Energy Studies, which last month recommended OPEC resist any reduction to output due the destabilizing effect it would have on a slowing global economy, was standing by his earlier counsel.
OPEC's attempts to bolster the price of its basket of seven crudes around the $25/bbl mark would be "short-termist," he said. Yesterday that benchmark basket stood at $22.77.
"OPEC is already on course to achieve an average $25/bbl over the year," Drollas said, "to push for that figure today would be self-serving."
Drollas noted that adding a cut of "slightly more than 1 million (b/d),"�as he predicts�to its still unfulfilled January output reduction of 1.5 million b/d before Apr. 1, when a shift in seasonal demand will require OPEC to again increase production in time for the demand peak in mid-summer, was "only serving short-termist gain."
With yet no final agreement on a production cut, Brent crude oil in London climbed 39� to $25.40/bbl in early trading on the International Petroleum Exchange. The April contract for benchmark US light, sweet crude gained 14� to $26.55/bbl Thursday on the New York Mercantile Exchange, while the May contract was up 20� to $26.82.
The general softness of the market expected to persist through the next month would benefit from a weaker crude price, as it would allow refining margins to be restored, and encourage processors to run more crude in a period of seasonally weak consumer demand. There remains the outstanding problem, Drollas noted, that high oil prices would be a determining factor in a collapse in demand growth, as suggested recently by the International Energy Agency.
The IEA forecast in a report Wednesday that oil demand would decline by some 110,00 b/d, as a knock on effect of the slowdown in the US economy and high crude prices.
Softening demand for oil is "increasingly apparent" across most key regions markets, said IEA, with emerging economies, because of a dependence on US imports to balance their payments, confronting the twin problems of high oil prices and fallout from the North American downturn.
OPEC Sec. Gen. Ali Rodriguez Araque had said earlier Friday that a formal agreement would be made before the end of the day, but suggestions from various delegates, including Qatar's Al Attiyah, as the informal meeting broke up this afternoon, were that an announcement would not be made before Saturday.
