Oil rises on Opec production curb

Mr Khelil said Opec would re-assess the situation at the end of the year

Oil prices have risen to $104 a barrel in Asian trade, reversing earlier losses, after OPEC agreed to return to its late 2007 production levels.

After talks in Vienna, Opec president Chakib Khelil said the measures to curb over-production amounted to a cut of 520,000 barrels a day within 40 days.

The October US light crude future was up about $1 to $104.20 a barrel after earlier tumbling to near $102.

Prices have sunk from a record of more than $147 a barrel seen in July.

On Tuesday Brent crude had dropped beneath $100 a barrel for the first time since April, and crude prices remain close to $100, below which Goldman Sachs said earlier this week could signal a global recession.

The fall from the record prices in July has helped the US dollar, which hit an 13-month high against the euro on Tuesday.

Supply question

The price has since fallen by nearly 30% as a global economic slowdown has reduced demand for oil.

Supply has also been increased in recent months by some Opec members – principally Saudi Arabia.

Meanwhile, Indonesia has suspended its membership of Opec.

Actions [to curb output] will be taken by members as soon as they can Chakib Khelil, Algerian oil minister

“The conference regretfully accepted the wish of Indonesia to suspend its full membership in the organisation and recorded its hope the country would be in a position to rejoin the organisation in the not too distant future,” Opec said in a statement.

After the late-night talks in Vienna, the group announced it had decided to “strictly” comply to the production ceilings agreed in September last year, which amount to 28.8m barrels a day excluding Indonesia and Iraq.

It linked the falling price of oil to slowing economic growth, a stronger US dollar, easing geo-political tensions and greater supply.

“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” a statement said.

Output curbs

The effect of the measures will be a cut of about 520,000 barrels a day, according to Algerian Oil Minister Chakib Khelil, who chaired the meeting.

“Actions [to curb output] will be taken by members as soon as they can, that means in the next 40 days,” he said.

Opec members will re-assess the situation when the meet again at the end of the year.

The move is a compromise meant to avoid new turmoil in the oil markets, but it also reflects Opec’s attempts to stop the recent falls in global prices.

Output issues loom as Opec meets

Iran is leading the calls from those nations demanding an output cut

The United Arab Emirates'(UAE) delegation to Tuesday’s Opec oil meeting says the cartel will continue to keep the world “well supplied”.

Minister of Energy Mohammed Bin Dhaen Al-Hamli also said crude stockpiles in major oil consuming nations were within recent average levels.

It came as Iran led calls for Opec to cut output.

Analysts say the cartel may scale back production as prices have fallen from $147 a barrel in July to about $107.

Light, sweet crude rose 53 cents to $106.67 during trading on the New York Mercantile Exchange on Monday.

‘Market requirements’

The price hit a five-month low just above $105 on Friday, under pressure from economic weakness and lower fuel consumption.

However the Kuwaiti oil minister, Mohammad Olaim, backed the views of the UEA’s delegate Al-Hamli.

“We don’t think there is a requirement to decrease production,” he said before leaving for the meeting in Vienna.

“If the market requires anything to do, we will.”

Al-Hamli added in his remarks that decisions on production levels are based on whether the market is well supplied.

He also said the recent fall in prices showed that the earlier steep rise in prices from $100 a barrel at the turn of the year was “too high, too fast”.

But Iranian Oil Minister Gholam Hossein Nozari said on Monday that there was “oversupply” as he arrived for the 13-nation conference.

Increased output

On Sunday, Libya also called for a reduction in Opec output. Opec is currently thought to be producing about a million barrels per day (bpd) more than its official ceiling of 29.67 million bpd.

In May and June Saudi Arabia agreed to increase production by 500,000 bpd to help calm markets.

Saudi Arabian Oil Minister Ali al-Nuaimi has yet to state an opinion on output and prices ahead of the meeting.

Opec produces about 40% of world crude. In July, the exporters’ group said world demand for oil will grow by 50% between now and 2030 as people in developing countries drive more cars.

Oil ‘could hit $200 within years’

Rising oil prices push up the cost of other items such as petrol and plastics

A serious oil supply crisis is looming, which could push prices above $200 a barrel, a think tank has warned.

A “supply crunch” will affect the world market within the next five to 10 years, the Chatham House report said.

While there is plenty of oil in the ground, companies and governments were failing to invest enough to ensure production, it added.

Only a collapse in demand can stave off the looming crisis, report author Professor Paul Stevens said.

“In reality, the only possibility of avoiding such a crunch appears to be if a major recession reduces demand – and even then such an outcome may only postpone the problem,” he said in The Coming Oil Supply Crunch.

Lack of funding

Prof Stevens warned that investment in new oil supplies has been inadequate as oil firms prefer to return profits to shareholders rather than reinvest it.

Furthermore, oil producing cartel Opec has failed to meet plans to expand its capacity since 2005.

He also argued that a “resurgence of resource nationalism” means that governments are “starving” their national oil companies of investment by excluding international oil firms from helping to develop capacity.

“While the forecast is controversial and extremely bullish, even allowing for some increase in capacity over the next few years, a supply crunch appears likely around 2013,” he added.

“The implication is that it will quickly translate into a price spike although there is a question over how strategic stocks might be used to alleviate this.”

Unpopular measures

However, Prof Stevens does conclude that only “extreme policy measures could achieve a speedy response” in boosting supplies and lowering oil prices – a move that is likely to be “politically unpopular”.

Other, longer-term moves suggested by the report include offering support to help oil-exporters to manage “resource curse” – where an abundance of natural resources can damage a country’s economy – and allowing Opec to join the International Energy Authority’s emergency sharing scheme.

The report comes just days after oil prices slipped from peaks near $150 a barrel.