OPEC strained over Saudi output

Dissent has emerged in OPEC after Saudi Arabia's announcement of unilateral plans to increase supply.

    The Saudi plan to boost output has upset many in OPEC

    The kingdom has asked the Organisation of the Petroleum Exporting Countries (OPEC) to endorse a big increase in cartel output limits to lower crude prices.

    Hopes OPEC might swiftly back a Saudi plan to lift supply limits by up to 11% (2 to 2.5 million barrels daily) have been dashed.

    Some are angry that Riyadh has decided to lift its production to just over nine million barrels daily in June, a rise of about 10%, without OPEC approval.

    "They can't. It's a mistake. Saudi Arabia can't decide alone to increase production," Libya's Oil Minister Fathi bin Chitwan told reporters in Amsterdam on Sunday.

    The comments bode ill for OPEC unity at a time when US oil prices are near 21-year highs, peaking last week at $41.85 a barrel.

    US Energy Secretary Spencer Abraham said Saudi had promised to raise June output to 9.1 million barrels a day, slightly more than the 9.0 million indicated in a statement on Friday from Saudi Oil Minister Ali al-Naimi.

    "Minister Naimi stated to me that Saudi Arabia is fulfilling all genuine requests for June for a total of 9.1 million barrels a day and stated that going forward they will meet all requests up to their capacity of 10.5 million bpd," Abraham said.

    The officials representing the world's biggest oil producing and consuming nations spoke during an energy forum in the Dutch capital. 

    The Saudi effort would put an extra 800,000 barrels a day of oil on the world market in June, up 10% from its estimated April output of 8.3 million.

    Pumping flat out

    All other OPEC members are pumping flat out, most above official limits, so any increase in quotas for them would only legitimise existing supply.

    Saudi announced its measure before informal OPEC talks on Saturday that agreed oil prices should come down to avoid hampering world economic growth.

    But the talks made no mention of Riyadh's recommendation that OPEC lift quotas by more than two million bpd. A full meeting in Beirut on 3 June will decide policy.

    Al-Naimi told Shoichi Nakagawa, Japan's Minister of Economy, Trade and Industry (METI), that Saudi wanted OPEC to lift quotas by 2 to 2.5 million barrels a day, METI official Yasuo Tanabe told Reuters.

    The Arabic Al-Hayat newspaper quoted al-Naimi as saying he saw the need for an increase of 2.3 to 2.5 million.

    "We support the Saudi Arabian proposal and hope that it will be adopted by OPEC to show that there is a will to explode the speculative bubble," said European Energy Commissioner Loyala de Palacio.

    "I believe the action by Saudi Arabia is important," British Chancellor of the Exchequer Gordon Brown told reporters before a meeting of the Group of Seven economic powers in New York.

    "That will add pressure on the other OPEC countries to do the right thing."

    "I feel there's going to be a lot of resistance to the Saudi idea in Beirut. The fear is that when prices start going down it won't be $1 or $2 it will be $10"

    Senior OPEC delegate

    Riyadh has upped the stakes after an initial proposal two weeks ago to raise output by at least 1.5 million bpd, six per cent, failed to stem a rise in prices.

    "We don't agree," said Libya's Chitwan of the new Saudi plan. "This is too much."

    Venezuela also opposes.

    A senior OPEC delegate from another country told Reuters: "I feel there's going to be a lot of resistance to the Saudi idea in Beirut. The fear is that when prices start going down it won't be $1 or $2 it will be $10."

    Some in OPEC said they would like to take the opportunity while prices are high to upgrade the group's official $22 to $28 a barrel price target.

    "$28 to $30 for the OPEC basket is a very reasonable price for producers and consumers," said Qatari Oil Minister Abd Allah al-Attiya. Nigeria agreed.

    SOURCE: Reuters


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