OPEC signals intention to maintain oil output quotas

OPEC ministers signaled they intend to leave production quotas unchanged at a meeting that starts tomorrow, meaning oil is unlikely to drop much from its current price near $30 a barrel.

``For the time being, the supply of our goods is sufficient,'' OPEC Secretary-General Ali Rodriguez said Monday in Vienna, where ministers are gathering. Representatives from Algeria, Iran, Nigeria, Qatar and the United Arab Emirates have expressed similar sentiments.

A 23 percent rise in oil prices in London -- the benchmark for two-thirds of all production -- so far this year has pushed up consumer costs worldwide, contributing to an economic slowdown. The effect has been more pronounced in Europe and Japan, where declining currencies boosted prices even more.

Crude oil rose less than 1 percent to $29.26 a barrel on London's International Petroleum Exchange as Iraq, OPEC's No. 4 producer, halted oil exports in protest of a United Nations plan to extend trade sanctions for a month instead of rolling them over for the normal six-month period.

Other OPEC countries including Saudi Arabia have said they will ensure the market has adequate supplies.

In the U.S., crude oil for July delivery rose 20 cents to $28.13 a barrel on the New York Mercantile Exchange. Iraq accounts for about 4 percent of world production and exports more than 2 million barrels of oil a day.

Iraqi production halt

Taha Mosa, the head of Iraq's delegation to the OPEC meeting, said production would resume in one month, provided the UN extends the previous agreement for six months.

Iraq's oil production last month dropped 170,000 barrels to 2.71 million barrels a day, the first decline this year, according to a Bloomberg survey of producers, oil companies and analysts. Production in May by all 11 OPEC members fell to a 14-month low of 27.39 million barrels a day, the survey showed.

The 10 members with quotas -- all except Iraq -- pumped 24.68 million barrels a day. That was 479,000 barrels, or 2 percent, above their daily quota of 24.20 million barrels.

The OPEC meeting comes just after the beginning of the U.S. driving season -- too early to tell whether the U.S. economic slowdown is hurting demand for fuel. Average U.S. pump prices for regular gasoline peaked at a record $1.718 a gallon on May 14, the American Automobile Association Web site reported.

OPEC may have to boost production should the Iraqi stoppage last, analysts said.

``The overall situation isn't too bad now,'' said Leo Drollas, deputy director at the Centre for Global Energy Studies in London, which was founded by former Saudi oil minister Sheikh Zaki Yamani. ``If there is a prolonged problem with exports, prices will go well over $30 a barrel into July and August.''

Steady Prices Seen

Still, futures markets anticipate Brent crude oil prices will fall by the time of December settlement to around $26.85 a barrel.

Oil ``prices will remain near current levels for the remainder of the year,'' Archie Dunham, Conoco Inc. chairman and chief executive, said in Saudi Arabia yesterday. ``I'm sure if prices were to spike, OPEC would increase output to restore stability.''

Because of last year's surge above $30 a barrel, the three largest publicly traded oil companies -- Exxon Mobil Corp., Royal Dutch/Shell Group and BP Plc -- reported a total net income of $41.5 billion in 2000.

Analysts attribute the rising oil prices to factors other than OPEC production restraints -- the need to make numerous blends of gasoline for environmental reasons and inadequate refinery and pipeline capacities. OPEC oil quotas, which exclude Iraq, were cut twice already this year to prop prices up, following four increases in supply last year.

Rising Investment

Rising oil prices are spurring investment in oil fields outside OPEC nations. Oil companies will increase spending on drilling and exploration by 20 percent to $114 billion this year, Schroder Salomon Smith Barney has said. Baker Hughes Inc., a U.S. oil-services company, reported that 2,430 drilling rigs were operating worldwide in February, the highest since November 1987.

Top energy-consuming nations are putting a new emphasis on alternatives to oil. U.S. President George W. Bush advocated increased use of coal and nuclear energy in his recent blueprint for solving what he called his country's most serious energy shortage since the 1970s. The plan also calls for more domestic oil production.

Boosting Growth

While energy prices have risen, central banks in the U.S. and Europe have lowered interest rates this year to boost growth.

Federal Reserve Chairman Alan Greenspan said inflation is not a ``problem'' for the U.S. economy, and European Central Bank President Wim Duisenberg said the pace of price increases in Europe is likely to slow. Both spoke to a conference in Singapore.

After divisions between nations helped send oil below $10 a barrel in 1998, OPEC members pushed prices back up in 1999 and 2000 by cooperating in cutting supplies and enlisting the help of non-OPEC states such as Mexico. Prices soared to a 10-year high last year.

OPEC has said it would consider increasing supplies if the price of its oil index stays above $28 a barrel for 20 consecutive trading days, as stipulated in an informal accord.

``OPEC will manage the market,'' said Iran's oil minister, Bijan Namdar Zanganeh, while in Vienna. ``I am not concerned about any shortage (now) in the market.''

The OPEC benchmark stood at $26.56 on Thursday, nearing the top of a $22 to $28 target range. Prices have stayed inside the band since January, helped by OPEC decisions earlier this year to remove 2.5 million barrels a day from the market.

``Stocks are full and prices are within the range, so there's no reason'' to act at this week's meeting, said Chakib Khelil, Algeria's oil minister and the OPEC president, today in Vienna. He said the group was unlikely to meet in July or August. (*)