OPEC Is Motivated to Extend Production Cuts: Review & Outlook
Dubai, Dec. 15 (Bloomberg) -- OPEC, after helping oil prices
to more than double this year by reducing output, may extend the
self-imposed cutbacks until the end of the second quarter, when
world demand usually rises, analysts said.
The Organization of Petroleum Exporting Countries' current
cuts, about 6 percent of the world's daily supply, are scheduled
to expire at the end of March. They have helped benchmark Brent
crude to rise to $24.46 a barrel from less than $10 in December.
Whether OPEC extends its voluntary cap on production could
affect the world's economies, because higher energy costs can add
to inflation. Because of the group's clout, an ill-timed decision
can be disastrous -- as in 1997 in Indonesia, when OPEC increased
production just as Asian economies were slowing.
``April is not the time of year to boost output,' said Bruce
Evers, an analyst at Investec Henderson Crosthwaite in London.
``OPEC will more than likely put off boosting output until later
in the year to make absolutely sure to send the right signal to
the market and avoid another Jakarta.'
The 11-nation group, which pumps 35 percent of the world's
oil, next meets in Venezuela at the end of the first quarter, when
global oil demand will begin to slacken at the end of the Northern
Hemisphere's winter, and won't pick up again until June, ahead of
the summer holiday driving season in the U.S.
As OPEC restrains output, demand is increasing. Consumption
next year will rise 2.4 percent, to 77.1 million barrels a day
from 75.3 million in 1999, the International Energy Agency said.
Increased Revenue
OPEC members are finding that increased revenue from higher
prices more than offsets the effects of lower production. Thus,
they want more time for supply cuts to draw down inventories and
repair the damage to their economies caused by a 36 percent price
plunge in 1998.
Kuwait Oil Minister Sheikh Saud Nasser al-Sabah, who has been
OPEC's loudest advocate for an extension, has said current cuts
would continue until at least the end of the second quarter next
year, to makes sure global oil stockpiles are reasonable.
This month, world supplies will fall as oil demand rises to
78.3 million barrels a day from 76.6 million in November, buoyed
by rising heating oil consumption and strong economies in North
America and Asia, the IEA report said.
Oil ministers in Iran, Qatar, Venezuela, the United Arab
Emirates, Algeria and Mexico have joined their Kuwaiti colleague
and indicated OPEC may maintain production cuts after they expire
next year. Meanwhile, Saudi Arabia, the world's biggest producer,
hasn't yet committed to extending the output cuts.
Exporters inside and outside OPEC have more than 6 million
barrels of idle daily capacity after 10 nations in OPEC, along
with Oman, Mexico, Russia and Norway, agreed to cut world oil
output by about 7 percent for a year starting April 1.
Soft Landing
OPEC faces a balancing act, analysts said. If they keep
cutting production, prices may soar too high and cause inflation
in consuming states. If members pump too much, prices will fall.
``They must provide a soft landing for the market,' said
Jassem al-Saddoun, an oil analyst with Kuwait-based Al-Shall
economic research center. Even if demand rises, he added, ``OPEC
must be very cautious about boosting output because of the
psychological impact it would have on oil prices.'
OPEC oil ministers have indicated they are content with
present prices and want to return stability to a market where oil
prices last year fell to a 12-year low and have since soared 160
percent.
The price of seven types of oil that OPEC monitors has
averaged $17.05 a barrel this year, down from $17.72 in the
previous eight years and still short of the $21 a barrel price
OPEC Secretary General Rilwanu Lukman said the group desires.
Saudi Arabia, the world's biggest oil producer, dismissed
claims that extending the agreement could lead to accelerating
inflation in some of the world's biggest economies, including the
U.S. -- the world's largest oil importer.
Importing countries should consider cutting fuel and excise
taxes rather than advocating that producers increase production,
said the kingdom's oil minister, Ali al-Naimi.
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