OPEC Sec General Doesn't See New Oil Cuts in May
VIENNA (Dow Jones Newswires), Apr. 24, 2009
OPEC Secretary General Abdalla Salem El-Badri said he doesn't expect the oil cartel to cut production when the group meets next month, despite signs of even weaker crude demand and swelling oil inventory in big energy consuming nations.
The Organization of Petroleum Exporting Countries needs to fully implement an agreement announced back in December to remove 4.2 million barrels a day from world markets before embarking on more reductions, El-Badri said.
"We need to take all that off the market before we can talk about new cuts," El-Badri told Dow Jones Newswires in an interview here Thursday.
Speaking at his office, El-Badri said he had yet to speak to other ministers about the group's next meeting, scheduled for May 28, and emphasized that OPEC's 12 ministers could still decide to announce further output cuts next month. "They can come together and not hesitate to take action," he said. But doing so won't be easy. Saudi Arabia, the world's biggest oil exporter and de facto OPEC leader, has cut output by around 200,000 barrels a day below its OPEC quota allocation to around 7.9 million barrels a day. The kingdom and other Gulf member nations may not have much appetite for even more reductions when other members have yet to fulfill their obligations.
Oil markets also may not take new cuts seriously if higher compliance levels aren't seen.
Of OPEC's announced reduction made in December, the group has cut output by around a respectable 80%, or 3.4 million barrels a day, from its September production levels. But that level is basically unchanged from March, El-Badri said. He said the group needs compliance with existing quotas to rise above 90% before embarking on another round of cuts.
Excluding Iraq, OPEC's total production ceiling after the cuts announced late last year is 24.845 million barrels of oil a day.
OPEC kept its output unchanged at a March meeting, citing concern for the ailing global economy. But the cartel finds itself facing even weaker oil fundamentals than last month that could sharpen differences between members over their commitments to existing output reductions, analysts say.
"While OPEC production cuts should be able to effect a drawdown in inventories to more normal levels by the end of the year, worsening downside risks include not only a further worsening of the global economy but higher chances of OPEC infighting should compliance not improve before the next meeting," analysts at PFC Energy said in a research note earlier this week.
Iran, OPEC's second biggest producer after Saudi Arabia, has in recent days talked about the prospect of even deeper production cuts next month, but the country has fulfilled only about half of its obligation, according to various analyst estimates.
El-Badri, who last month was re-elected by OPEC members to serve a second three-year stint as secretary general until the end of 2012, again gave indications that OPEC was resigned to weak oil prices this year, but he warned about the negative impact such prices are having on OPEC and industry investment. El-Badri's current term started in January 2007.
"I think we (OPEC) have to live with this environment for 2009 ... but we must remember the consequences," El-Badri said.
Oil futures traded around 3% higher on the day Friday afternoon to climb above $51 a barrel, led by strong equities and the weak dollar. Those prices, however, remained sharply below their record highs of around $147 a barrel, reached last July.
The number of planned OPEC drilling projects that have been canceled or put on hold after 2012 has increased beyond the 35 projects El-Badri announced earlier this year, he said.
"I think there are now more (OPEC projects put on hold or canceled) than we thought," the secretary general said, declining to elaborate.
OPEC will release an annual report at the end of June that will highlight project cancelations within OPEC countries, which pump about 40% of the world's daily oil supply.
Forecasters, including OPEC, have slashed their 2009 global oil demand forecasts in past weeks while raising their estimates for the amount of crude stuck in storage due to limp industrial consumption.
The International Energy Agency in Paris, an energy watchdog to big oil consuming nations, earlier this month cut its world oil demand outlook by about 1 million barrels a day. It now sees consumption falling by almost 3% to 83.4 million barrels a day in 2009. That would be the steepest demand contraction in around 25 years.
Oil inventories in the United States, the world's biggest oil consumer, have ballooned to around 20-year highs with demand still falling.
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