Vienna, April 23 (Bloomberg) -- Saudi Arabia, OPEC's biggest oil producer, warned excess supplies are rising and may hurt prices in as little as two months, the strongest sign yet the group will agree to cut production. ``We are concerned if we don't take some steps, an oil glut may form,'' Saudi Oil Minister Ali al-Naimi said in Vienna, where OPEC members meet tomorrow. ``This meeting is to make sure we keep the market (price) where it is.'' London oil prices have slid from $34 a barrel in early March to around $25 now after OPEC boosted output to compensate for outages in Venezuela and Nigeria and the war in Iraq. Abdullah bin Hamad al-Attiyah, president of the Organization of Petroleum Exporting Countries, said last week he's concerned prices may drop further because of a seasonal slowdown in consumption.
OPEC, supplier of a third of the world's oil, this month has pumped 1.7 million barrels a day more than its quota of 24.5 million, according to estimates from PetroLogistics Ltd., a Geneva- based industry consultant. OPEC ministers have called for reductions of as much 2 million barrels a day, about equal to what comes from Nigeria, Africa's top oil producer. Ten OPEC members set output quotas to keep the price of an oil index they monitor between $22 and $28 a barrel. The benchmark was last at $26.24 a barrel, close to the middle of the range. OPEC member Iraq has no quota because of United Nations sanctions that govern its oil sales. OPEC said no representatives of the country have sought to attend the meeting. OPEC outside of Iraq this month has pumped 26.2 million barrels a day, compared with a target of 24.5 million, according to PetroLogistics. Of the total, Saudi Arabia pumped 8.9 million. ``We need to tackle compliance before considering a cut in quotas,'' said Obaid bin Saif al-Nasseri, the minister for the United Arab Emirates, in Vienna today.
Saudi Support
Deutsche Bank AG analysts expect OPEC to stress an improvement in compliance with the targets at the meeting and for Saudi Arabia to lower production as needed to bolster prices. ``We expect the Saudis to be willing to drop production at least to 8 million barrels a day,'' said Adam Sieminski, an oil strategist at the bank. A lack of urgency in diplomatic efforts necessary for a resumption of Iraqi exports ``has made it easier for OPEC to shore up prices,'' he said. While the U.S. military has said production may start from Iraq's northern fields next month, resuming exports depends on determining who will sell the oil. Brent crude oil for June settlement was down 21 cents at $25.25 a barrel on London's International Petroleum Exchange as of 11:19 a.m. Nigeria's top oil official, Rilwanu Lukman, yesterday called for closer adherence to OPEC's quotas, saying members should cut production by about 1.5 million barrels a day. Oil ministers and officials representing Venezuela, Qatar and Libya are also scheduled to arrive in the Austrian capital today. All have said world markets have too much oil, signaling support for a cut.
Back to Quotas
``By the end of the second quarter, OPEC needs to get back down to the quota to make up for the seasonal slowdown in demand,'' said Clay Smith, an oil analyst at Commerzbank Securities in London. With oil prices close to the middle of OPEC's target range and U.S. crude oil inventories 15 percent lower than a year ago, other analysts estimate that OPEC needs to lower supplies by a smaller amount. The Centre for Global Energy Studies, a consulting company founded by former Saudi oil minister Sheikh Zaki Yamani, said the group needs to trim supply by 500,000 barrels a day from March production to keep prices in the target range this quarter. Oil consumers, including the International Energy Agency, representing 26 industrialized countries, urge caution, saying supplies are needed to replenish inventories.//www.bloomberg.com