OPEC, pumping almost as much as it can amid soaring oil prices, decided Thursday to keep its output quota steady, rejecting Venezuela’s calls for a production cut.
But several members of the Organization of Petroleum Exporting Countries, which produces more than a third of the world’s oil, voiced concerns about rising global inventories and suggested that the cartel’s 28-million-barrel-per-day quota might need to be trimmed later in the year if demand weakens.
“We still worry about drastic upswings, just as much as we worry about downswings” in price, said OPEC president Edmund Daukoru, who is also Nigeria’s oil minister.
And in an official statement, OPEC said it maintains a “readiness to act swiftly ... to safeguard the interests of member countries.”
Yet for the time being OPEC put aside these longer-term issues to focus on a more immediate problem: $70-a-barrel oil.
Qatari Oil Minister Abdullah al-Attiyah made clear that “at this price level, OPEC won’t cut production.”
While high oil prices mean big profits for oil producers in the near term, the longer-term risk is that they could cause a dropoff in economic growth and spur the development of alternative energy sources.
Medley Global Advisors senior managing director Yasser Elguindi said most OPEC members “don’t want to send any signals to the market that there’s a floor at $70.”
Michael Lynch, president of Winchester, Mass.-based Strategic Energy and Economic Research, said the cartel could face a more difficult decision in the second half of the year if inventories continue to build and global economic growth slows. “That can really accelerate weakening prices,” he said.
In an apparent attempt to head off this possibility, Venezuelan President Hugo Chavez, a longtime price hawk, suggested trimming production now and he repeated calls for OPEC to establish a minimum price of $50 a barrel.
“There is enough oil on the market. We even believe there is an excess of oil on the market,” Chavez said in a speech, saying an appropriate upper-end for prices would be “infinity.”
Nigerian petroleum minister Edmund Daukoru said Chavez’ idea was not formally proposed to OPEC.
Crude prices slipped on Thursday, but still hovered above $70 a barrel on the New York Mercantile Exchange, after Iran’s foreign minister welcomed the idea of direct talks with the United States over its nuclear program, but rebuffed the U.S. condition that Tehran first suspend uranium enrichment.
In spite of some concerns about slowing demand growth, oil prices are not expected to collapse anytime soon, analysts said. Daily global demand is expected to average nearly 85 million barrels per day in 2006, and the world’s producers are believed to have less than 2 million barrels per day of excess production capacity that could be called upon in the event of a supply disruption. Moreover, this surplus is made up of lower quality crude oils for which there is scant available refining capacity, analysts said.
This thin supply cushion has left the market extremely nervous about any threats to output, such as the West’s diplomatic standoff with Iran, the war in Iraq, violence in Nigeria and the Gulf of Mexico hurricane season.
“The market isn’t well supplied,” said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, a New York-based industry-financed think tank. “The market is precariously balanced.”
As many expected, Chavez also used the OPEC meeting as a political platform, demanding that the U.S. pull its troops out of Iraq and “end the threats against the Iranian people.”
Chavez, a harsh and frequent critic of Washington, called President Bush a “threat to the world” and predicted his U.S. “empire” would end within a century. And he criticized rich countries for complaining about high oil prices.