OPEC Producing Adequate Oil, President Khelil Says

OPEC, the producer of more than 40 percent of the world's oil, is supplying the international market with enough crude and can't be blamed for record prices, the group's new president, Chakib Khelil, said.

There is enough oil in the market, Khelil, the Algerian oil minister who took over OPEC's rotating presidency for 2008, told reporters today in Algiers. It's the problems in Nigeria, in Pakistan and the credit crisis caused by the U.S. subprime- mortgage market collapse that caused prices to increase.

He declined to say whether the 13-member Organization of Petroleum Exporting Countries may decide to raise output to curb prices, when it meets on Feb. 1 to discuss production targets at its headquarters in Vienna. If we see that the U.S. economy has moved into a recession, we won't need to increase production because that will reduce demand for oil, he said.

OPEC seems happy with prices as they are, said John Hall, managing director of U.K-based John Hall Associates energy consultants. Otherwise, it would be thinking of increasing output to help the global economy and to meet rising demand from China and India.

Oil prices in New York rose to a record $100.09 on Jan. 3, as violence flared in Nigeria, Africa's largest producer, cold weather in the northern hemisphere boosted demand for fuels and investors bought commodities to hedge against inflation. Prices closed yesterday at $97.91 a barrel.

High Prices

Government reports that U.S. job growth missed forecasts and that unemployment had jumped to a two-year high of 5 percent are fueling concern that the economy is headed to a recession.

Oil prices will remain high through the first quarter of the year and they may drop in the second quarter, as winter comes to an end, said Khelil. Some non-OPEC countries can produce more crude, he said, without naming any.

OPEC members Iran, Libya and Qatar two days ago said OPEC cannot curb oil prices and that speculation and fears of supply disruption from the Middle East and Africa are fueling oil gains. Indonesia, OPEC's second-smallest producer after Ecuador, is so far the only member to publicly support increasing output.

OPEC, led by the world's top oil exporter Saudi Arabia, left production targets unchanged at its Dec. 5 meeting, ignoring U.S. and European Union calls to pump more oil.

OPEC's production ceiling now stands at 29.673 million barrels a day for 12 of its members. War-torn Iraq, which doesn't have a quota, produces about 2.3 million barrels a day.

Inadequate Capacity

Separately, Christophe de Margerie, the chief executive officer of Total SA, Europe's third-largest oil company, said he expects high prices for a long time.

There's not enough production capacity to meet demand, de Margerie said in an interview today on Europe 1, a Paris- based radio station. With strong demand like today and the inability to raise production, I don't see how prices could fall strongly and quickly.

He said the French company will strongly increase its investment budget this year from the $16 billion in 2007, adding that it will probably be raised in 2009 and 2010 as well. He warned, however, that investment decisions taken now will have an impact on capacity in five years.

A Bloomberg survey of analysts published yesterday showed crude oil may rise because of declining U.S. inventories and a weakening dollar.

Fourteen of 27 analysts surveyed, or 52 percent, said oil prices will rise through Jan. 11. Eleven of the respondents, or 41 percent, said prices will fall, and two predicted little change. Last week, 53 percent of respondents said oil would drop this week.

U.S. crude-oil inventories fell 25.1 million barrels to 289.6 million barrels in the past seven weeks, according to the Energy Department.

Source - Bloomberg