Iran warns against too much oil

The second-biggest OPEC producer said there was no need for the group to revise output targets because of the potential of oversupply in the market.

Iran has warned of a worsening oil glut and predicts OPEC will urge its members to comply with their production quotas when its ministers meet on Wednesday. The second-biggest OPEC producer also said there was no need for the group to revise output targets that had remained unchanged since December 2008. "If the current oil production continues, the oil market will face an oversupply in the second half of 2010," Mohammed Ali Khatibi, the country's OPEC governor, said in remarks reported yesterday on the Iranian oil ministry website SHANA. "OPEC will ask its members to comply with their quotas until the economic crisis is over."

Last week, in the latest monthly forecast published by its Vienna-based secretariat, the oil exporters' organisation, which controls 40 per cent of the global oil supply, predicted demand for its crude this year would undershoot output by 1.5 million barrels per day (bpd). On the other hand, the secretariat also forecast a 1.7 million bpd increase in demand for OPEC crude between the second and third quarters of the year, suggesting any oversupply would be mopped up.

Iran's heightened concerns, however, highlight a question that is sure to dominate the ministerial discussions this week: how quickly will the global economy, and therefore oil demand, rebound after the year's midpoint? To be sure, demand for oil to fuel power plants in Gulf countries, including Saudi Arabia, the UAE and Kuwait, will soon increase as the region's air conditioning usage rises with the onset of summer. Slack demand for oil in developed economies, however, could offset that, while China, whose economic recovery has been heavily fuelled by fiscal stimulus, could be the wild card.

As recently as last week, Mr Khatibi was playing down the significance of the big crude oil stockpiles that continue to overhang the market. "There is some oversupply in the market, but it cannot damage the market. It can be absorbed into stocks," he said last Tuesday. OPEC said its members pumped 29.31 million bpd of crude last month, an increase of 60,000 bpd from January's levels. The group's compliance with production quotas has been slipping for the past year as oil prices have risen.

With oil above US$80 per barrel, most analysts expect a decision to leave OPEC's output ceiling unchanged. None of the group's 12 member states has called for quotas to be raised. [e-mail]