Opec to maintain oil output despite price drop

Opec met yesterday against the backdrop of a $13 fall in the oil price since mid-July but ministers said they were unlikely to tamper with output ahead of peak winter demand and with supply worries ever present.

For a year, Opec has been pumping close to its fastest rate for 25 years to guard against price shocks and ease pressure on consumer economies. Prices have sunk from a record $78.40 a barrel on July 14 to a five-month low below $66 yesterday.

At the meeting Opec consedered a recommendation from its advisory committee that it keep its 28 million barrels per day production ceiling, for now, but leave the door open to another meeting before December if prices drop sharply.

Saudi Oil Minister Ali Al-Naimi Naimi, Opecw's most influential voice, took the recent price fall in his stride.

"Market fundamentals are very sound," he told reporters as the meeting began. "We are beginning to see a slight decrease in economic growth, very slight... It is nothing alarming."

Forecasts that demand for Opec oil will decline in 2007 are worrying some in the group that pumps a third of the world's crude. Some ministers, including Opec President Edmund Daukoru, have said Opec may have to cut its output ceiling before the end of the year.

"We have been oversupplying since about mid 2003," Mr Daukoru, also Nigeria's energy minister, said on Sunday. Opec ministers are taking a critical look at the supply-demand situation, he told reporters yesterday.

Gary Ross, CEO at PIRA Energy consultancy in New York said Opec was taking a sensible line.

"They are expressing a prudent view that they have to be vigilant and on top of their game. They don't want to see prices under tremendous downward pressure."

Opec sees no need to cut production yet - oil is still up $5 this year and three times the price at the start of 2002, the beginning of a four and a half year rally. Ministers are mindful that the Atlantic hurricane season still has several weeks to run and US Gulf of Mexico oil output has yet to recover fully from last year's storms.

Iran's disagreement with the United Nations Security Council over its uranium enrichment programme also has the potential to drive prices higher. The US favours sanctions against the world's fourth biggest oil exporter.

A quarter of Nigeria's oil output lies idle because of militant attacks and Iraq's exports are vulnerable to sabotage.

"This business is very tricky. When prices come down investors start thinking, should we build additional capacity? This business is a long term investment business so don't think these blips are significant. Look at it long term," Mr Naimi said.

Iranian Oil Minister Kazem Vaziri said he wanted to see Opec's basket of crudes holding above $60 a barrel, which would equate to US crude above $64.

Surging oil prices boosted the value of Opec's crude oil exports by 45 per cent to a record $513 billion last year.

But there are signs that economic activity is easing in top consumer the US and the second biggest consumer China has raised lending rates to try to cool its economy.

Opec's economists are forecasting demand for Opec oil will drop 800,000 barrels per day to an average 28.3 million barrels per day in 2007 as new non-Opec production comes onstream.

The latest US car sales data show increasing numbers of US drivers are trading in their sports utility vehicles for smaller, more fuel efficient cars.

Carl Calabro of PFC Energy in Washington said the real test for the organization may come early next year.

"The concern is what happens to the price in spring when demand falls. World inventories are quite adequate at the present time," he said.