Big Oil Trio Chart Plan to Ease Prices
By Richard Mably
LONDON (Reuters) - Leading oil producers now are agreed that oil markets have swung too sharply against consumers and that extra crude is needed soon to douse prices, sources familiar with talks between the three countries said.
The sources said Saudi Arabia, Venezuela and Mexico are negotiating a strategy aimed at letting the market down gently to achieve lower average prices over the remainder of the year.
But the trio, the architects of output reductions over the past two years, face difficulties in convincing their fellow producers, keen to keep prices high, that supply limits should be eased any time soon.
Tough negotiations over how to share out extra supply among 10 OPEC members plus Mexico and Oman and a reluctance to be seen reacting to pressure from the United States might also delay an agreement on higher supply, the sources said.
``Plan A is to get extra oil to the market, preferably soon, by April or May,' said one Latin American official familiar with ministers' telephone talks in recent weeks.
``The amount and the mechanism for distribution have still to be decided -- there is a lot of work left to be done in a short time. If there are difficulties then things might get delayed a few months.'
A non-Saudi official with a Gulf producer said: ``The Saudis are now concerned that inventories are getting too low and that prices could stay too high for too long.'
``There would be an impact on the world economy and the long-term interests of producers would be put in jeopardy,' he added.
Aim Is For Lower Average Prices
The sources said the aim of the three producers was to allow oil prices to ease lower after averaging $25.50 a barrel for London Brent futures and $27.20 for U.S. light crude so far this year.
Venezuela and Mexico this year both have budgeted for the equivalent of $19 U.S. crude.
``I think it is obvious that prices are very high and they will not stay this high. I would look at the budget estimates to tell the true story much more than suggestions about extending output cuts,' said another senior Latin American oil official.
``If we actually intended to maintain quota into September we would be talking about a much higher average price.'
Brent last year averaged $18 and U.S. crude $19.25, gains of 35 percent from the lows of 1998, after suppliers agreed to target supply reductions of some five million bpd that expire at the end of March.
The oil ministers of Saudi Arabia and Venezuela and Mexico now are working against the clock if they want to convince the remainder of the OPEC cartel to lift supply when it meets on March 27 in Vienna.
Policy on output has been orchestrated over the past two years by the three ahead of formal OPEC conferences where Mexico attends only as an observer.
Ironically, if prices fall from recent highs in the coming weeks, that would reduce pressure on OPEC to act and might allow supply curbs to be maintained beyond their end of March expiry.
Venezuela's Oil Minister Ali Rodriguez and Luis Tellez of Mexico are expected to meet with Saudi Arabia's Ali Naimi in Europe in the coming weeks. A date has yet to be set.
Two long-scheduled diary items, a meeting of Gulf Arab oil ministers on February 23 and U.S. Energy Secretary Bill Richardson's visit to Riyadh on February 25-26, also have assumed added significance. Richardson is considering loaning oil to U.S. companies from the state Strategic Petroleum Reserve to counter shortages and Gulf producers will not want it to appear that Washington is dictating policy.
``The U.S. visit may serve only to aggravate the situation,' said an OPEC oilman in one Gulf country.
Gulf OPEC producers the United Arab Emirates and Qatar are understood to sympathize with the Saudi position that extra oil may be needed as soon as April.
Fringe OPEC player Indonesia, which rarely speaks out of turn, also this week said it wanted OPEC to agree to a slight increase in supply to bring oil back into the $22-$26 bracket.
Opposition From Price Hawks
Opposition to any strategy to lift volumes after March is likely to come from the three countries that met in Tripoli last month -- Libya, Algeria and Iran.
Traditional price hawks keen to maximize revenues, they will be joined by Kuwait in arguing that, with the oil price collapse of 1998 still fresh in the memory, producers cannot risk causing a plunge in prices. |
