11/11 14:25
OPEC to Leave Output Quotas Unchanged, Focus on Cuts (Update2)
By Sean Evers, Stephen Voss, Alex Lawler, Margot Habiby and Alison Flint

Vienna, Nov. 11 (Bloomberg) -- OPEC will leave output targets unchanged at a meeting tomorrow, ministers said, focusing instead on future cuts to match an expected slowdown in demand and prevent a drop in oil prices early next year.

The Organization of Petroleum Exporting Countries has reached a consensus to meet again in Vienna in January to review output, the Algerian oil minister said. Other officials argued the group, which pumps about 40 percent of the world's oil, may need to lower production at that time.

An oil price decline ``is one of our concerns for the next quarters,'' Iran's Oil Minister Bijan Namdar Zangeneh said in Vienna as he arrived today, later adding he thought an output cut would be needed by the second quarter, without specifying the magnitude of the reduction.

OPEC's meeting tomorrow, the fourth this year, will occur just 12 days after the group's last increase took effect. Four production increases by OPEC this year have failed to lower prices to a target range of between $22 and $28 a barrel. With the group's oil output at a 21-year high and most members pumping all they can, further increases are unlikely, oil analysts say.

Still, Asian nations asserted rising oil prices will dampen an economic recovery there. Leaders from the Asia-Pacific Economic Cooperation group meeting next week in Brunei may ask oil- producing members to increase output, said Mitsuru Taniuchi, a Japanese government official.

Crude oil ended the week around $33 a barrel in New York, up by about one-third this year, after reaching a 10-year high of $37.80 in September. Still, prices adjusted for inflation are less than half their level in 1980, after the Iranian Revolution cut global supply.

Bottlenecks

Many OPEC members argue that today's high prices are caused by refinery bottlenecks and government taxes, which can represent 75 percent of the gasoline cost in parts of Europe.

``The problem now is not with oil'' supply, Ali Rodriguez, OPEC president and Venezuelan oil minister, said yesterday.

World production exceeded demand by 1.8 million barrels a day, or 2.4 percent, in the third quarter, according to the International Energy Agency, which monitors oil markets for 25 industrialized nations.

OPEC ministers signaled they may ignore an informal mechanism designed to keep their price benchmark between $22 and $28 a barrel if it's triggered this month. The measure stood at $30.79 Thursday.

Seven out of 10 analysts and traders surveyed by Bloomberg predict the next change in OPEC targets -- sometime next year -- will be a reduction. Until then, winter demand for heating fuel will keep prices high, with New York oil futures averaging $29.16 a barrel in the first quarter of 2001, the analysts said.

OPEC ``most probably'' will need to meet again in January to reduce production to prevent a glut, Algerian Oil Minister Chekib Khalil said yesterday as he arrived. The Kuwaiti oil minister, Sheikh Saud Nasser al-Sabah, said today his nation would back such a move if prices fell too low.

Still, that decision will not be taken at tomorrow's meeting, OPEC Secretary-General Rilwanu Lukman told the United Arab Emirates' WAM news agency.

Past Errors

In the past, OPEC has been slow to prevent oil prices from becoming too low to hurt government revenue, of which 80 percent can come from oil. An output increase in December 1997, just as Asian economies were sputtering, sent oil to around $10 a barrel a year later before members organized a plan to end the slide.

``It is in the interest of producers not to cause harm to the world economy because that harm would affect everybody,'' Saudi Defense Minister Prince Sultan ibn Abdel-Aziz was quoted as saying today by the official Saudi Press Agency.

Should estimates on surplus output prove wrong, or an unexpected incident cut supplies, the world will turn to the Saudis, the world's top producers, to lower prices during the Northern Hemisphere's winter heating season, when demand peaks.

Saudi Arabia is already pumping about 8.9 million barrels a day, leaving 1.2 million barrels a day idle to plug any gap, according to Bloomberg estimates. The rest of OPEC combined only has about 750,000 barrels a day of unused output.

`If Needed'

Rodriguez said OPEC may not automatically boost output again at the end of this month if prices held above $28 for 20 consecutive days, a price limit that it has used this year to determine increases.

Algeria's Khalil told reporters today that he believed the mechanism should remain in place, with the group raising output quotas again if dictated by the accord. He said he would support an increase at the end of this month ``if needed.''

OPEC has already boosted quotas by about 3.7 million barrels a day this year, and output from all 11 members reached 29.6 million barrels a day last month, Bloomberg estimates show.

Also on OPEC's agenda this weekend will be a search for a new secretary-general to replace Nigeria's Lukman, who has held the post since January 1995. Saudi Arabia, Iraq, Iran and Libya have all fielded candidates.