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OPEC president: Strength of global economy, worries over Iraq cloud oil outlook
by The Associated Press
Current crude oil prices are a bit high, but any increase in real oil production resulting from the Sept. 19 meeting of the Organization of Petroleum Exporting Countries “should be small,” OPEC President Rilwanu Lukman said Sept. 1.
In an interview with Dow Jones Newswires, Lukman said the Organization of Petroleum Exporting Countries faces many difficult signals in setting oil output policy for the coming winter, noting that the possibility of a U.S. war with Iraq and the strength of the global economy cloud the picture.
While OPEC doesn’t want to see prices climb too high, it also doesn’t want to add too much oil to the delicate market and repeat the 1997 price collapse, Lukman said. U.S. crude prices plunged then from $21 to below $11 by December 1998 and didn’t return to the pre-collapse level until August 1999.
“U.S. economic growth is being hit now by the corporate scandals. It’s not clear how that will play out. There are confusing signals. We just have to go with our gut feeling at the end of the day,” he said before the start of the World Petroleum Congress here.
“I’m cautious, but I’m a little optimistic,” said the veteran Lukman, who also is Nigeria’s representative to OPEC ministerial talks. “If there is any increase at all (in OPEC supply), it should be small,” he said.
Lukman noted that independent sources have said that OPEC members exceeded the cartel’s output ceiling of 21.7 million barrels a day by 1.8 million barrels a day in July.
He said the market has already factored in the fact that any increase in output quotas on paper would essentially legitimize current overproduction.
Some OPEC sources have said the group’s best option at the Sept. 19 talks in Osaka, Japan, is to reinstate the cut of 1.5 million barrels per day in the output ceiling instituted Jan. 1. This would improve OPEC’s credibility by bringing quotas more in line with actual supply, these sources said.
Officials don’t want changed quotas Officials from Venezuela and Indonesia — which analysts said have little ability to boost production — and Kuwait have said they don’t want OPEC to change quotas at the Osaka meeting.
OPEC sources said Saudi Arabia is pushing for a rise in quotas, but officials of the kingdom, in typical fashion, haven’t made their position public.
OPEC has been successful in keeping oil prices near the $25 midpoint of its $22 to $28 range for its basket of crudes in recent months. But, due in part to Iraq-U.S. worries, the price climbed to near $27 in late August, the highest level since the Sept. 11 attacks on the World Trade Center and Pentagon. OPEC’s basket price through Aug. 29 averaged $25.87.
“We have a comfort zone of $25 for the basket,” he said. “As a rule of thumb, we start reassessing (output policy) when prices go to $22 to $24. ... Above $26, they are moving in a nervous direction.” The current basket price is “just above our comfort zone.”
He repeated that OPEC would cover any sustained disruption of Iraqi oil supplies and noted that oil-consuming countries, like the United States have called for an increase in OPEC supplies on expected stronger demand this winter.
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