OPEC stays hand for now, examining cuts next year

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The Independent Online

OPEC decided today not to pump any more oil into the market for now and warned that supply could soon outstrip demand after four output hikes this year failed to tame runaway prices.

OPEC decided today not to pump any more oil into the market for now and warned that supply could soon outstrip demand after four output hikes this year failed to tame runaway prices.

Ministers from the Organization of Petroleum Exporting Countries will meet again in Vienna on Jan. 17 to review the market situation, the group said after formal talks ended on Monday.

OPEC argues that it has done its bit to try to cap prices, which are still hovering near 10-year highs, by pumping an extra 3.7 million barrels per day this year.

It blames speculation, high fuel taxes and refining bottlenecks for prices that have aroused the ire of consumers grappling with higher gasoline prices and soaring heating bills.

Oil prices rose on news of no immediate output increases. North Sea Brent crude stood at dlrs 32.12, up 8 cents, on the International Petroleum Exchange in London. December light, sweet crude futures were up about 45 cents to dlrs 34.47 in Singapore trading Monday.

OPEC said in a communique after Monday's meeting that oil production, both OPEC and non-OPEC, has been increased by around 5.2 million barrels per day this year.

It said these increases had prevented prices from "skyrocketing" but noted that once all these increases reach the market, overall supply would exceed demand.

OPEC fears a drop in prices next spring when the demand for heating oil tails off. Some delegates said over the weekend that production cuts will likely be discussed at the January meeting if prices need to be buoyed.

"The market is getting perhaps a little saturated and there is a stock buildup which is likely to hit us in the face later in the new year," OPEC Secretary-General Rilwanu Lukman said Monday.

"It is a matter of being prudent and careful while moderating prices. We do not want to overdo it and put the market in a state of jeopardy unnecessarily," he said.

Delegates also rubber stamped a decision to name OPEC President Ali Rodriguez, who is also Venezuelan oil minister, as the cartel's new secretary-general, replacing Lukman.

Algeria's Chakib Khelil replaces Rodriguez as president and will alternate in the post every six months with Nigeria.

After Sunday's talks, Kuwaiti Oil Minister Sheik Saud Nasser al-Sabah said the cartel would not increase output before January.

That was a sentiment supported Monday by Iranian oil Minister Bijan Namdar Zangeneh.

"We have decided not to do anything to increase before January, but of course any time we can have an extraordinary meeting," Zangeneh said.

Such an outcome could run afoul of an informal OPEC agreement aimed at keeping prices between dlrs 22 a barrel and dlrs 28.

Under the deal, agreed to earlier this year, OPEC members pledged that if average prices for crude remain above dlrs 28 for 20 consecutive days, they would hike daily production by 500,000 barrels.

They last did that just 13 days ago but prices are still above the upper limit - and likely to stay there long enough to require another production increase under the agreement.

Some ministers supported the price agreement, but others said it was more a guideline than a hard and fast rule.

"The price band is only a tool. It is not a panacea for the market," Lukman said. "We have to apply it with a certain amount of discretion and intelligence."

Some analysts say OPEC simply cannot pump any more, even if it wanted to.

"I think they are stuck. They don't have options. They are using pressure of falling demand and refining restrictions as the reason why they cannot act aggressively now," said Jareer Elass, managing director of Oil Navigator.

OPEC's decision to do nothing for the moment may have been inevitable given the capacity problems, but consumer nations are likely to view it poorly, especially with oil prices still hovering near Gulf War highs.

Some analysts said Rodriguez's nomination as secretary-general could be bullish for prices.

"He's been very outspoken on concerns about excess production and prices collapsing because he's a price hawk," said Elass.

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