- The Washington Times - Wednesday, September 10, 2008

VIENNA, Austria – OPEC oil ministers will likely decide to keep output at present levels, the group’s president said Tuesday, suggesting that most members could accept prices at $100 a barrel.

Ministers of the 13-nation organization are expected to make a formal decision on what to do about production amid rapidly falling prices when they meet later Tuesday for consultations likely to last into early Wednesday.

OPEC President Chakib Khelil’s comments, however, indicate that most members would rather accept less-costly crude than cut back and risk renewing the market turmoil that in recent months set one price record after another.

“We will probably stay at the (present) level,” Khelil told reporters.

Amid expectations that OPEC would leave production unchanged, oil prices dropped below $104 a barrel Tuesday for the first time since early April, even before the comments by Khelil, who is also Algeria’s oil minister. The belief that Hurricane Ike would miss critical Gulf Coast oil installations also sent prices sharply lower.

Benchmark crude for October delivery fell $2.44 to $103.90 in midday trading on the New York Mercantile Exchange, the lowest level since April 3. Prices rose 11 cents to settle at $106.34 in volatile trading Monday.

Support for keeping production steady has been building, with OPEC powerhouse Saudi Arabia suggesting the ministers would opt against cutting back despite concerns over falling prices.

“The market is fairly well-balanced,” Oil Minister Ali Naimi told reports on arrival to Vienna early Tuesday. “I think things are in balance, in a healthy position.”

Naimi, whose country accounts for about a third of OPEC production, appeared to rebut calls for a cutback from Iran, OPEC’s No. 2 producer and a traditional OPEC price hawk. “We believe the market is oversupplied,” Iranian Oil Minister Gholam Hossein Nozari told reporters Monday.

Other OPEC ministers have been less strident in calling for a tightening of the oil spigots, despite a nearly 30 percent tumble in oil prices after they neared $150 a barrel in July. OPEC nations account for two-thirds of the world’s known oil reserves, and about 40 percent of the world’s oil production, affording them considerable control over the global market.

Venezuela is also normally among those backing higher prices. But on Tuesday Venezuelan Oil Minister Rafael D. Ramirez said there was no immediate need to lower production – even while warning of a likely oversupply by year’s end.

“We think we can keep … current output levels,” he told reporters. Still, he suggested that OPEC would have to consider cutting back in the coming months, saying the organization estimated that demand would fall by close to 1 million barrels by December.

That, and present overproduction of 1 million to 1.5 million barrels a day, means “we need an action plan from here to December to keep the market balanced,” he said.

Mohammed Abdullah Al-Aleem – Kuwait’s oil minister and a member of an OPEC committee whose recommendations could influence OPEC’s final decision about output – also said there is no need for OPEC to cut production “for the time being.”

His Iraqi counterpart, Hussain Al-Shahristani, described the market as “well-supplied, if not oversupplied.” Asked what he thought was a reasonable price for OPEC oil, he replied: “Where we are now.”

Iraq is the only OPEC member not under production quotas because of the unrest roiling the country. But the turmoil has diminished in recent months, allowing Baghdad to ramp up output.

Al-Shahristani said Iraq was producing 2.5 million barrels a day as of early this month, adding he expected that to rise to 2.7 million barrels of crude a day by the end of September.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent. Still, any decision to keep the present production quota of 27.3 million barrels steady will reflect the belief of the majority of OPEC producers that they can live with prices of around $100.

Despite their precipitous fall, prices remain 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.

Additionally, OPEC understands that high prices drive down demand.

Still, a price of $100 a barrel is a psychologically important level for OPEC. Venezuela warned ahead of the meeting that slippage much below that mark should be the red line triggering cutbacks.

That sentiment is shared by some other members, although the Saudis have suggested they could live with prices between $80 and $90.

Such diverging opinions could set the stage for a struggle in December, when OPEC is scheduled to meet again – or even prompt emergency consultations before that, should prices fall too far, too quickly.

“If winter demand doesn’t come around, the OPEC might have to cut production below its set target,” said Ehsan ul-Haq, head of research at JBC Energy in Vienna, Austria.

He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world’s appetite for crude by year’s end.

With most of the oil ministers observing the Islamic month of Ramadan, the meeting on output levels was set for late Wednesday evening.

Associated Press Writer Pablo Gorondi contributed to this report from Vienna.

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