OPEC share increase move to protect shares

Instead of cutting back supplies, OPEC decides to increase oil output before Iraq returns to the market

    The Organisation of the Petroleum Exporting Countries (OPEC) decision to increase its oil supply quotas is being seen by dealers as pre-positioning ahead of Iraq's return to the group's system of output quotas.

    "This looks like a tactic for Saudi Arabia to protect market share before Iraq returns to reclaim a quota," Oystein Berentsen, international trading manager at Norway's Statoil said.

    The cartel's surprise increase in supplies could affect prices after expectations it would cut back on extra pre-war supplies.

    OPEC ministers agree on an increase
    in oil supply quotas

    Ministers agreed to lift limits by 900,000 barrels a day to 25.4 million bpd for 10 member countries, excluding Iraq.

    That new deal is to take effect on June 1 and ministers will meet again 10 days later.

    OPEC sanctioned extra deliveries ahead of the war on Iraq to prevent an oil price shock.

    It tried to present its deal as a cut of two million bpd from average production in February and March of 27.4 million bpd, when Iraq pumped 1.9 million bpd.

    Dealers said the 10 countries now seemed intent on grabbing market share before dealing with the contentious issue of reintegration Iraq back into the organisation's system of output limits.

    "This is all smoke and mirrors," Nauman Barakat, a broker of Fimat International Banque in London said. "Saudi Arabia appears to be grabbing a higher quota before the return of Iraq."

    Raad Alkadiri of Petroleum Finance Corportation agreed.

    "It looks like they have precluded any return of Iraq oil before June, and are effectively sharing Iraq's market share between them."

    Production levels

    It won't be any time soon before Baghdad can match its pre-war production. But in the near future, it has the ability to take second place in OPEC's ranks behind Saudi Arabia.

    Riyadh currently controls a third of the 11-member group's production, with a quota now of 8.26 million bpd.

    Saudi Arabia's Oil Minister Ali Al-Naimi said output could be trimmed at the June meeting in Doha, Qatar. "Very, very possible," the minister said.

    Nigeria's OPEC delegation head Rilwanu Lukman admitted as much. "Iraq is not producing now and we don't want the market to be caught short."

    Oil prices initially fell in response to the decision, but later recouped their losses.

    Reference Brent North Sea crude oil stood at 24.26 dollars per barrel in Friday morning deals, down four cents from the previous closing price.

    SOURCE: Unspecified


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