May 27, 2003

OPEC on line to cut output to avoid 'crisis'


DOHA—OPEC can be expected to agree to slash production at a ministerial meeting in Qatar on June 11 to avoid a price collapse, OPEC President Abdullah bin Hamad al-Attiyah told AFP on Monday, strongly defending Iraq's position within the oil cartel.

"The cut will be the topic that will be very carefully" discussed, Attiyah said, noting that confusion about Iraq's return to the market and inventories made it difficult to set a figure.

"I believe maybe we will cut it because we believe that in all earnestness there will be more oil in the market and the market cannot accept it. "We don't want to see this huge floating of oil, collecting dramatically and putting pressure on the oil price. We don't want to see ourselves in the position of 1999," when prices collapsed to $10 a barrel on oversupply.

"Personally I believe $25 is a very reasonable price," said Attiyah, who is also Qatar's energy minister, reiterating the 11-member cartel's target rate.

"We will discuss the market situation very carefully. We would like to be sure that we are on the safe side ... avoiding any crisis."

Iraq's return to the market after the US-led war is predicted to come around the end of June, but Attiyah said it was difficult to read.

The Organisation of Petroleum Exporting Countries would "also treat very carefully the re-entry of Iraq to the market," at the June talks in Doha.

"It's really very difficult," he stressed, recalling conflicting reports of the exact timing and how quickly Iraq would reach pre-war daily average production of 2.7 million barrels per day (bpd).

"This also we have to study very carefully," he said. "The analysis is very confused now about when Iraq is coming."

He took strong issue with US suggestions that Baghdad may pull out of OPEC.

"I heard a lot of rumours saying maybe Iraq will withdraw," Attiyah said in his office at Qatar's energy ministry.

"Is it true? I don't believe it. Is the interest of Iraq tomorrow to see the oil price at $6? I don't believe it. I don't think this a pragmatic answer." Washington's chief executive officer of Iraq's oil advisory board, Philip Carroll, told the Washington Post on May 17 Iraq may be best served by ignoring OPEC quotas and producing as much oil as it can.

"I believe personally that Iraq needs OPEC and OPEC needs Iraq and Iraq is one of the founders of OPEC," Attiyah riposted in reference to the establishment of the cartel in Baghdad in 1960.

"Anyone can say ignore" the producers' cartel, Attiyah said, raising his voice. "Anybody can walk out of OPEC, this is a sovereign decision, but is it of benefit to Iraq? My answer is no," Attiyah.

Attiyah has already said that for oil-related matters OPEC would not recognise the United States as a representative of Iraq, which boasts the world's second largest oil reserves, and would await a new government in Baghdad.

Iraq for the past decade has remained an official OPEC member but has exported its oil under United Nations auspices as part the sanctions regime imposed following its 1990 invasion of Kuwait.

Sanctions were lifted last week, paving the way for exports under the post-war US administration in Iraq.

Iraq's last OPEC quota in July 1990 was 3.14 million bpd, the same as Iran and about 14 percent of OPEC's production ceiling. Before the war Iraq's antiquated oil industry could manage to pump an average of 2.7 million bpd.

Attiyah admitted that OPEC's decision in April to cut two million bpd from actual production created some "confusion", but he defended the effort to "balance supply and demand."

"We closed our eyes to any extra production" by quota busters, he said. "Current production was higher than the quota by almost higher three million (bpd)."

The minister, who said the issue of quota busting would also be taken up in Doha, called for people to recognise the role of OPEC in "successfully" balancing supply and demand despite recent turmoil.

"Consumers should give credit to OPEC for not taking advantage of consumers because we could have taken advantage of the consumers when the price was 30 dollars or over, but we didn't."

Crude slumped after OPEC's unexpected move to raise output ceilings from June 1 while also trying to crack down on quotas busting.

However, prices have since risen despite the removal of UN sanctions. In London, benchmark Brent North Sea crude oil for July delivery rose to $26.34 per barrel in late Friday trading from $26.15 a week earlier.

In New York, light sweet crude June-dated futures reached $29.30 from $28.75 the previous week, but closed at $29.16 for July delivery. Dealers took fright after low weekly US oil inventory figures were released on Wednesday.