Iran Assures Officials It Will Not Cut Production

OPEC to keep oil output unchanged
Iran assures officials it will not cut production

http://www.msnbc.msn.com/id/11110538/from/RS.3/

Updated: 2:25 p.m. ET Jan. 31, 2006

VIENNA, Austria - The Organization of Petroleum Exporting Countries essentially sat on its hands Tuesday in the face of soaring oil prices by deciding to keep its output steady. But analysts say the cartel doesn’t have much near-term leverage to push prices lower even if it wanted to.

In spite of slower oil-demand growth and rising inventories of crude around the globe, crude futures are hovering around $68 a barrel because of supply fears linked to geopolitical uncertainty, such as Iran’s nuclear standoff with the West and violence in oil-rich Nigeria.

“This is really a happy accident as far as OPEC is concerned,” said Tim Evans, senior energy analyst at IFR Energy Services in New York.

While OPEC has considerable power at the moment to establish a floor undernearth prices by trimming output, analysts said the cartel runs the risk of becoming too confident that record prices won’t harm it in the long run by stunting economic growth and sparking investment in alternative energy sources.

Evans said OPEC’s biggest producer, Saudi Arabia, could theoretically add another 1 million barrels per day to the market if it wanted to do everything in its power to help lower prices. But he is not convinced it would reverse the bullish market psychology.

“There is nothing close to a physical shortage going on here,” said Evans, who noted that U.S. inventories of crude are 11 percent above year ago levels. “Instead, what the market is holding here is a significant, and in fact growing, implied risk premium.”

In an effort to address the market’s supply fears, OPEC President Edmund Daukoru of Nigeria said Iran, one of the cartel’s founders, had assured him and other members that it would not curtail its oil production to punish the West. The possibility that Iran will be referred to the United Nations Security Council for economic sanctions over its nuclear program had overshadowed this week’s meeting.

The market also remains jittery, though, about violence in Nigeria that forced Royal Dutch Shell PLC to shut down nearly 10 percent of the OPEC member nation’s 2.5 million barrels-per-day oil output. This comes on top of output troubles in Iraq and the slow recovery of oil production in the Gulf of Mexico nearly five months after Hurricane Katrina damaged platforms and pipelines.

OPEC’s decision to hold output steady at 28 million barrels a day had been widely expected after two days of informal meetings by the cartel’s 11 members.

However, Qatari oil minister Abdullah bin Hamad al-Attiyah said a cut in output would be discussed at the March 8 meeting. OPEC is concerned that it could get caught on the wrong side of a seasonal dropoff in demand that would cause global oil supplies to bulge to a level that would send prices significantly lower.

But Lawrence Goldstein, president of the New York-based Petroleum Industry Research Foundation, said OPEC better be careful about feeling a sense of entitlement to oil prices above $60 a barrel.

“No one should be comfortable with with sixty dollar oil,” said Goldstein, warning that economic activity in the U.S. and China is already showing some weakness and that there is the risk of even slower growth if prices stay in the current range.

Light sweet crude for March delivery fell 60 cents to $67.75 a barrel on the New York Mercantile Exchange, while March Brent crude futures fell 27 cents to $66.32 a barrel.

Saudi oil minister Ali Naimi said Tuesday’s decision to hold output steady was unanimous. But the group seemed less cohesive on the question of whether a cut may come at the next meeting in March.

Naimi said he didn’t think it was needed, but said “it’s really too early to tell — we’ll have to look at the market.”

Venezuela’s Rafael Ramirez was more succinct: “Yes, probably,” he said.

Libyan oil minister Fathi Hamed Ben Shatwan said earlier that if a cut were made at the next meeting, it would take effect April 1 and be between 500,000 and 1 million barrels a day.

But, according to Goldstein, the best long-term strategy for OPEC would be to continue pumping as much as possible — even as the global economy cools.

“What they need is a gradual erosion in price to a level that is sustainable over a longer period of time,” he said.

© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

“There is nothing close to a physical shortage going on here,” said Evans, who noted that U.S. inventories of crude are 11 percent above year ago levels. “Instead, what the market is holding here is a significant, and in fact growing, implied risk premium.”

I did a search on Timothy Evans, and found this Q&A from April 2005...

http://www.businessweek.com/bwdaily/...50427_5199.htm

"Q: But there's a limited global supply and rising demand in the U.S. and China?

A: First, oil supplies are always finite, and oil reserves are always finite. That's not really headline news.

In terms of rate of growth, world oil demand grew last year by 3.4%. Yes, 3.4% was more yearly growth than we had seen in quite some time. [But] going back to the '50s and '60s, world oil demand during that era was growing an average of 9% per year. We didn't have oil-price shocks then.

Part of our fear really dates back from 1998 and 1999, when we had oil prices down at $12 per barrel. Those prices choked off investment in production capacity. That was the bust part of the cycle, and we're now in the boom part of the cycle. But it's still a cycle. The believers in the long-term steady march to $105 are basically making that it's not a boom-and-bust cycle anymore."

Ok, so he doesn't believe in Abiotic Oil, and admits that oil is limited, however he says that supplies are high, and doesn't mention a "Peak".