LONDON (AP) – OPEC members plan an emergency meeting this month aimed at curbing runaway crude production to avert a possible price crash, a source at the producers’ cartel said Monday.
Oil ministers at the Organization of Petroleum Exporting Countries have agreed to meet April 24 in Vienna, Austria. The meeting will take place whether or not the war in Iraq has ended, the source said, speaking on condition of anonymity from OPEC headquarters in the Austrian capital.
Most OPEC members have been producing at maximum capacity to keep world oil supplies plentiful during the war. However, oil ministers are increasingly worried that OPEC might be oversupplying the market just as demand starts falling to its seasonal low.
“There is some serious concern among some of the ministers that prices could be headed for a crash if they don’t act quickly to stop the trend,” the source said. “No one is talking about cutting production of course, but that would be the only feasible thing to do.”
The group has decided not to wait until OPEC’s benchmark price for oil falls below the group’s minimum threshold of $22 a barrel.
“You don’t wait for the crisis to happen. You act before,” the source said.
Oil prices have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the outbreak of fighting in Iraq. May contracts of U.S. light, sweet crude fell to a low on Monday of $27.15 before bouncing more than a dollar on news of OPEC’s planned meeting. U.S. crude for May delivery was trading at $28.12 by early afternoon in New York, still 50 cents lower than Friday’s close.
In London, contracts of North Sea Brent crude for May delivery slipped as low as $23.40 a barrel before rebounding in the afternoon to $24.50, down 18 cents from Friday’s close.
Only last month, OPEC signaled that it would pump more oil to make up for any supply disruption caused by hostilities in Iraq. Although members agreed in March to stick with their production target of 24.5 million barrels a day, some analysts say that rampant quota-busting has boosted OPEC’s current output to around 27 million barrels a day.
Kevin Norrish, head of commodities research at Barclays Capital, said OPEC is right to be concerned about weak prices.
Saudi Arabia, the group’s biggest member, has made “a massive increase” in output, while exports from Venezuela are growing steadily following the recent collapse there of a nationwide strike. Output in Nigeria is starting to recover from disruptions caused by social unrest, and Iraq will eventually resume production, Norrish said.
Demand typically falls in the second quarter due to declining sales of winter heating oil in the northern hemisphere. Demand for gasoline often doesn’t pick up until the peak summer driving season.
This year, springtime demand is expected to fall more sharply than usual. With a wartime supply shortage looking unlikely, oil-importing countries will stop buying crude for their strategic reserves, Norrish said.
“I think OPEC is correct to identify the possibility of a sharp fall,” he said. “They’re being pre-emptive because once the market starts to get away from them it could be very difficult to bring it back.”
If OPEC does nothing to cut production, Norrish predicts that U.S. crude futures will fall to $21.50 by June or July.
One item that won’t be on the agenda for this month’s meeting is how to reintegrate Iraq into OPEC’s production-quota system. Iraq hasn’t participated in the group’s production agreements since the 1991 Gulf War because the United Nations has regulated its exports.
A postwar government in Iraq would almost certainly want to maximize crude exports to help pay for reconstruction. Such a policy would add further to global supplies unless other OPEC members, chiefly Saudi Arabia, agree to reduce their own quotas to make room for a resurgent Iraq.
This issue is potentially explosive, and the OPEC source said oil ministers have deferred trying to tackle it until at least June, when they plan to meet again in Doha, Qatar.
AP-ES-04-07-03 1320EDT
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