Opec ministers gather in guarded mood

Opec leaders gather with the spotlight on Saudi Arabia and a production target likely to be raised at today's meeting.

Mohammed al Hamli, the UAE Minister of Energy, said 'you need to really look beyond to the view in the second quarter. It [oil supply] is going to be tight.' Matthias Schrader / AP Photo

VIENNA // Opec ministers were intent on keeping their differences behind closed doors on what is shaping up as the group's most contentious gathering in years.

Arriving with a bevy of advisers two days ahead of today's crucial meeting, Ali al Naimi, the influential Saudi oil minister, erected an uncharacteristic wall of silence around the kingdom's delegation.

Mutual suspicion abounds among Opec ministers who are reportedly far from reaching a consensus on whether to raise the group's official output target.

Mohammad al Busairi, the Kuwaiti oil minister, gave the clearest indication of any minister as to the likely outcome of the policy meeting to be held today, in the first such encounter since unrest in the Arab world sent prices soaring above US$100.

"I expect Opec to increase output during this meeting but I am still unsure how much," he told Reuters.

Mr al Naimi said last week he would favour a production increase if there was a need for more oil, but did not elaborate on whether he felt the market was already well supplied.

For the past three years he has consistently argued that $70 to $80 a barrel is an appropriate valuation for crude. But that is far below today's prices.

Other ministers including those of Iraq and Angola - two countries that since the 2008 oil price collapse have pumped as much crude as they can - have recently said oil at $100 to $120 a barrel was reasonable, ignoring warnings from oil consumers that such prices could precipitate a second wave of recession.

Crude prices fell sharply in the second half of 2008 after a bull run to the record $147 per barrel in July of that year helped to trigger the worst global downturn in six decades.

Some other Opec members that cannot easily raise output, including Iran, Venezuela and Ecuador, are also understood to oppose higher quotas.

"Oil prices are hurting the economy," said Fatih Birol, the chief economist of the International Energy Agency, which represents industrialised oil consumers. "I hope to see more oil in the markets soon."

Crude in New York and London fell for a third consecutive trading session yesterday, dipping below $100 and $115 respectively, on expectations that Opec would respond by raising output at today's meeting.

But even if that is the group's decision, there is little certainty that the pressure on crude prices will persist.

One concern is that any substantial production increase would have to come from Saudi Arabia as the holder of most of the world's spare oil production capacity. But investor worries about shrinking spare capacity could propel crude prices higher in a market already nervous about future supplies.

"Opec has limited options," said David Goldwyn, until recently the US state department's co-ordinator for international energy affairs.

"Less available spare capacity also makes markets nervous and can defeat the benefits of a production increase."

Fighting in Libya, Yemen and Syria has removed as much as 1.8 million barrels per day of crude from the international market. There are concerns about supply disruptions spreading as the political turmoil that has gripped the Middle East and North Africa since last December continues. That could upset what is now a delicate market balance.

"You need to really look beyond to the view in the second quarter. It is going to be tight," predicted Mohammed al Hamli, the UAE Minister of Energy.

Ian Taylor, the group chief executive of the oil refiner Vitol, said on the sidelines of a conference in Kuala Lumpur that futures contracts for next-month oil delivery were trading just slightly above those for delivery further in the future, "which would suggest there's just about enough oil".

Analysts say Opec members led by Saudi Arabia have been only partially successful in replacing the lost Libyan barrels.

"Opec is trying to compensate [for] part of the shortage of supply of crude and create a balance in the market," said Mohammad Ali Khatibi, the Iranian Opec governor.

Continuing hostilities in the Middle East may also affect the approaches taken at the Opec meeting by representatives of countries that are regional rivals.

"Don't be surprised to see personal politics mixing with economic reasoning," said Steven Schork, an independent energy analyst based in Pennsylvania.

Iran's caretaker oil minister, Mohammad Aliabadi, who will chair today's meeting, nevertheless said yesterday he would listen to the views of others before jumping to conclusions himself.

Despite a lack of oil industry experience, Mr Aliabadi was recently appointed to the ministry after Iran's constitutional watchdog, the Guardians Council, vetoed a plan by the country's president Mahmoud Ahmadinejad to lead the oil ministry himself. Iran this year holds the rotating Opec presidency.