OPEC seen likely to keep output steady

Iraq's long-awaited return to the OPEC fold may dominate headlines when the cartel meets this week, but it probably won't have much impact when the organization sets output policy for the next few months, AP reported.

Sabotage of Iraq's oil pipelines continues to crimp its exports, and earlier fears that Iraq might quickly restore its prewar output and glut the market with crude have all but disappeared.

With Iraq's recovery taking much longer than expected, several members of the Organization of Petroleum Exporting Countries have said the group should hold production steady for now ahead of the busy winter heating oil season.

OPEC, which supplies about a third of the world's oil, aims to keep the price of its benchmark blend of crudes within a targeted range of $22-$28 a barrel. Although prices were well above this range in August, they slipped $4 a barrel over the last three weeks and stood Friday at $24.90.

The recent price slide could trigger talk of cutting output when OPEC ministers meet Thursday in Vienna.

"Yet to cut back production right now would be very dangerous because winter is coming, and they'd get a lot of pressure from Western governments," said Albert Anton of the New York investment and brokerage firm Carl H. Pforzheimer & Co.

Paul Horsnell, Head of Energy Research at Barclays Capital in London, noted that prices are still "bang in the middle" of OPEC's targeted range.

"It's not any sort of crisis," he said.

OPEC has a daily production ceiling of 25.4 million barrels. Saudi Arabia, Kuwait and Indonesia all expressed support earlier this month for keeping this limit unchanged.

OPEC is counting on demand to pick up in the fourth quarter as refiners stock up on crude ahead of winter sales of heating oil in the northern hemisphere. The International Energy Agency, a watchdog for major oil importing nations, forecasts that global demand will rise by 2.3 million barrels a day during the last three months of the year.

Oil inventories are still low in many countries, and IEA chief Claude Mandil said earlier this month that OPEC should raise output "a little" to help reduce prices.

OPEC Secretary-General Alvaro Silva Calderon said he saw no reason for an increase.

OPEC members typically pump more oil than the quotas they've committed to, especially when prices are high, and estimates of the group's current overproduction vary widely. Indonesia's Mines and Energy Minister Purnomo Yusgiantoro said he would urge his counterparts in Vienna to show more discipline in sticking to their quotas.

Regardless, OPEC appears most likely to keep its official ceiling where it is.

"The easiest course of action will be to do nothing," Anton said. "But they do have problems coming up next year."

The anticipated uptick in autumn demand should help keep prices well within OPEC's targeted range for the rest of 2003, said the Center for Global Energy Studies, a London consultancy. However, OPEC ministers will be looking ahead to the beginning of next year, which could prove a turning point.

Price could drop significantly by the second quarter of 2004 if non-OPEC producers such as Russia keep pumping more oil and if Iraq gradually increases its own production. OPEC ministers should prepare to slash output at the end of winter if they want to keep prices within their desired range, some analysts say.

Iraq is a big source of uncertainty for OPEC's planners. It has the world's second-largest proven crude reserves but is only producing about 1.5 million barrels of oil a day -- 1 million barrels less than on the eve of the war. It now exports just 900,000 barrels a day, according to the OPEC's official news agency.

"Iraq is struggling to get back to where it was last February," Horsnell said. He doesn't foresee Iraq producing at prewar levels on a sustainable basis until some time in 2005.

However, even an incremental rise in Iraqi could erode prices when demand drops to a seasonal low next spring.

Iraq hasn't attended an OPEC meeting since U.S.-led forces ousted Iraqi President Saddam Hussein. Iraq hasn't participated in OPEC quota agreements since the United Nations imposed sanctions in 1990 to punish Baghdad for invading Kuwait.

Twelve years of sanctions have left Iraq's oil facilities in lamentable shape, but sabotage and looting have distracted Iraqi oil engineers and their U.S. backers from the essential job of repairing and replacing run-down equipment.(*)