Iran, Analysts Dampen Hints of Imminent OPEC Move

DUBAI, Jul 24, 2007 (Dow Jones Commodities News)

The Organization of Petroleum Exporting Countries doesn't yet see any indication of heightened demand for its oil, a top Iranian oil official said Tuesday, with other officials and analysts pouring cold water on the prospect of an impending change in the producer group's current "do-nothing" policy.

Oil prices have fallen back from their 11-month highs in recent days on assumptions that OPEC is becoming more concerned about their impact.

"We are concerned about the higher price, because we don't want to go through a recession," OPEC President Mohamed Al Hamli told Reuters Sunday.

However, "OPEC has not received any complaint that there's not enough crude oil in the market," Javad Yarjani, the oil ministry's head of the OPEC affairs department, told Dow Jones Newswires in a phone interview from Tehran.

"I don't think from now until September this picture will change. Then, when OPEC will meet all these things will be discussed."

OPEC meets for policy talks in Vienna Sept. 11.

Other officials within OPEC are said to be bemused by suggestions of a policy change, when oil prices, which in inflation-adjusted terms remain below well their records, are falling and at a time when members are finding their spending power eroded by the weak dollar.

Among OPEC members, "there is less concern because the dollar has depreciated, so the buying power is lower," Simon Wardell at Global Insight in London said.

Also, "there's no sign of a demand response. Economic growth continues to remain strong and next year it's forecast to be strong again. So as long as the price isn't damaging economic growth prospects, OPEC is relatively happy with where it is."

"If OPEC saw the necessity to produce more oil, it would do so," Commerzbank said in a note Tuesday.

"These statements and market reaction should not be interpreted as signaling an immediate opening of OPEC's spigots, nor should one expect a material improvement in the global supply/demand balance any time soon," Bart Melek at BMO Capital Markets in Canada said in a note.

Not Enough Oil?

Iran's Yarjani said crude oil inventories are "very well on top of the five-year average," making immediate OPEC action to increase output unnecessary, echoing a raft of comments from other officials in recent weeks.

He said current high prices were due to "a problem in...downstream, some problem with the stock level of some refined products in some parts of the world."

An OPEC official said Tuesday that the group will be monitoring stockpiles over the coming weeks, ahead of the peak-demand fourth quarter of the year.

"OPEC is quite simply not producing enough oil," the London-based Centre for Global Energy Studies said in a report Monday.

It has misjudged how much oil non-OPEC producers can pump and production cuts implemented from late last year have eased much of the surplus oil in the system, the Centre said.

"Without more OPEC oil prices will continue to rise in the coming months," it added.

OPEC last week issued fresh forecasts for oil demand and supply for this year that show the implied daily consumption for its members' crude in the final three months of this year would outstrip their current supply by a hefty 1.15 million barrels.

Sputtering production by rival producers to OPEC, mainly Norway, led to that deficit widening further against OPEC's estimate a month previously. The group has revised higher the expected fourth quarter demand in eight of the last nine months, while over the same timeframe withdrawing supplies to prevent prices from falling too far.

Outright estimated demand in the period is now expected to be more than 31 million barrels a day, a hefty 10% higher than OPEC thought in October.

"The problem comes in the fourth quarter and without a big stock build now, there could be quite a substantial drawdown," according to Simon Wardell at Global Insight in London.

"That's what the market is focused on now and OPEC hasn't addressed this problem. People would be pleased to see an increase in production quotas" in September "but it still might be a little bit late."

"If there is a need for crude, OPEC is always ready to react and supply the market," Iran's Yarjani said.

The Paris-based International Energy Agency forecasts 2008 world oil demand growth of 2.5%, or 2.2 million barrels a day, its fastest rate of growth since 2004.

OPEC last year committed to cutting output by more than 6%, or 1.7 million barrels a day, in two phases commencing Nov. 1, though it only met around 1 million barrels a day of that.

The reductions were agreed as part of an OPEC push to reverse a decline in oil prices, which hit a 20-month low of $49.90 a barrel in mid-January.

At 1358 GMT, light, sweet crude futures in New York were down $1.63 a barrels at $73.26 a barrel.

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