OPEC Steps Back From Explaining Oil Output Cuts

LONDON Oct 3, 2006 (Dow Jones Newswires)

The Organization of Petroleum Exporting Countries Monday stepped back from attempting to explain production cuts by some of its members, amid market skepticism about just how serious producers within the group are about tightening their spigots.

"There will be no statement coming out of OPEC," an official at the group's headquarters Vienna told Dow Jones Newswires early Monday. A press release had originally been prepared Friday but was never sent to media, OPEC sources said.

This followed confirmation from Venezuela's oil minister, Rafael Ramirez, that the country would press ahead with a voluntary oil production cut of 50,000 barrels a day from Oct. 1, "with the intention of mitigating the fall in prices over the past few weeks."

Marketing sources from Nigeria's National Petroleum Corp. (O.NNP) also said Friday that there has been a 5% reduction in the country's crude export supplies, or around 120,000 b/d, though they added that the cut had nothing to do with an agreement among some in OPEC to trim supplies, contrary to media reports.

Between the two countries, the cut totals around 170,000 b/d on paper, but the fact that both producers are pumping below their targets - in Venezuela's case by as much as 700,000 b/d - has led to skepticism that supplies will fall that much.

Olivier Jakob at Petromatrix said: "The announced cuts are coming from countries where actual production is very difficult to measure," adding "there is no way to effectively measure if a country like Nigeria or Venezuela is producing plus or minus 50,000 b/d."

He added that the market is "torn between the macro players wanting to be long on OPEC policy and the micro players wanting to be short on the ever-deteriorating fundamentals."

Citigroup's Mark Bloomfield said: "Cuts of this magnitude, if enacted, seem unlikely to alter market fundamentals, the primary impact being the signaling effect."

At more than 30 million b/d, OPEC's 11 members are responsible for more than a third of global crude output.

Oil prices have fallen by a fifth since their record high of $78.40/bbl in mid-July, as inventories have grown, U.S. gasoline demand growth in the summer slowed, and with much of the speculative premium in oil evaporating as tensions in the Middle East eased.

U.S. light, sweet crude futures Monday were down 57 cents at $62.34/bbl.

An oil official from an Arabian Gulf country said many in OPEC continue to pump oil above their agreed targets, with Saudi Arabia, as an example, pumping 9.3 million b/d in August, against its 9.1 million b/d target.

Saudi Arabia unilaterally lopped some 400,000 b/d off of its output in April - though output has since recovered - but once OPEC members "are producing at their quota and they see prices falling, that's when you should expect an OPEC decision."

But the official warned: "You just have to have a little chill and see how that affects the oil price."

An OPEC spokesman Friday dismissed reports that some members had made a pact to voluntarily trim supplies to prevent oil prices from falling: "There is no OPEC agreement, unofficial or official, to cut output," the Vienna-based spokesman at the OPEC secretariat told Dow Jones Newswires.

OPEC President Edmund Daukoru also dismissed reports of an unofficial agreement: "I'm totally unaware of this," he said. "Of course the recent price fall is a shared concern, but consultations (with other OPEC members) are still continuing."

At the weekend, a senior delegate attached to a key OPEC country said members can cut output if they deem it necessary and that ministers had agreed to do something "if oil prices continue their free-fall."

Copyright (c) 2006 Dow Jones & Company, Inc.


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