As Iraq attends its first OPEC meeting since the US-led invasion in March, analysts warn that rising Iraqi supply and forecast increases in Russian production growth next year will result in falling prices.
“OPEC's high price strategy can work for a while but if Iraq's exports recover, mid-2004 will present a tough market for OPEC to manage,” Adam Sieminski of Deutsche Bank in
London told Reuters.
OPEC countries, who meet in Vienna on September 24, have grown plump on another year of high oil revenues buoyed by a slower-than-expected recovery in Iraq's post-war production
which prevented industrialised nations from rebuilding fuel stores.
Oil prices are currently above the $25 a barrel mid-point of OPEC's target range. The cartel is unlikely to change a 25.4 million barrels per day (bpd) production quota in place since June, say analysts.
Despite this, the cartel - which controls over half of world oil exports - will be watching nervously and calculating when to reduce supply, after prices slumped 14% in the past month.
“OPEC is heading for enough of a price slide that it will have to cut production next year,” Sarah Emerson of Energy Security Analysis in Boston told Reuters.
Unless politics again intervenes to upset oil supply, as it did this year in OPEC members Venezuela, Nigeria and Iraq, the cartel's ability to stick within proscribed quotas faces a
sterner test in 2004.
Iraq could rise back to pre-war production capacity of 2.8 million bpd by next March, providing it can contain acts of sabotage on its northern export pipeline that have kept production at half that level since the war.
OPEC is likely to defer a decision on requests for higher quotas until Iraq's supply is more settled and Baghdad reincorporated into cartel quotas.