OPEC announces no change in oil output, braces for Iraq to resume exports
VIENNA, Austria (AP) – OPEC members agreed Tuesday to continue pumping oil at current levels of production but braced for softer crude prices as Iraq showed a willingness to resume its suspended oil shipments.
The Organization of Petroleum Exporting Countries announced its decision after a formal meeting of delegates at the cartel’s headquarters in Vienna. OPEC pumps about two-fifths of the world’s oil, with an official production of 24.2 million barrels a day.
Soon after the OPEC meeting at its headquarters in Vienna, the U.N. Security Council in New York voted to extend by five months a humanitarian oil-for-food program. The program allows Iraq – strapped by U.N. trade sanctions imposed after the Gulf War – to sell oil to buy food, medicine and other essential goods.
The head of Iraq’s OPEC delegation, Saddam Hassan, told reporters earlier that Iraq was prepared to renew its daily exports of 2.1 million barrels of oil ”within a week” but only if the Security Council did not attach any conditions to the program.
But the resolution does refer to the council’s intention to eventually consider the elements of a trade sanctions overhaul. Iraqi U.N. Ambassador Mohammed al-Douri declined to say what Baghdad will do, but added that the reference ”is unacceptable in principle.”
OPEC president Chakib Khelil told a news conference that a resumption in Iraqi exports might have a short-term ”psychological” impact on oil markets but added that OPEC expected prices to stabilize later in July and August whether or not Iraq comes back to market.
”There was a complete consensus on not increasing production at this stage,” he said after the OPEC meeting.
Libya’s acting oil minister, Abdul Karim, expressed hope earlier that rising seasonal demand during the second half of the year would absorb any additional oil supplies from Iraq. Refiners typically buy more crude in the fall and winter to process into heating oil for consumers in colder climates.
Saudi Arabian Oil Minister Ali Naimi played down Iraq’s potential impact on prices.
”It’s just another source of supply and we have said we will handle either shortage or glut in the market,” Naimi said. Saudi Arabia is OPEC’s biggest producer.
OPEC delegates plan to meet again on September 26 to review market conditions at that time. A possible decrease in demand due to the slowing U.S. economy and a downturn in growth in Europe was ”our main concern,” OPEC Secretary-General Ali Rodriguez told the news conference.
Naimi noted that global demand was sluggish and added that oil producing nations have made large investments in production capacity that would lead to higher output levels in the future.
OPEC already has a plan to curtail its total production by 500,000 barrels a day if the average price of OPEC’s benchmark crudes slips below $22 a barrel for 10 consecutive trading days. Conversely, OPEC has said it will boost output by half a million barrels a day if its benchmark or ”basket” price exceeded $28 for 20 consecutive business days.
OPEC has targeted a basket price of $25 a barrel. On Monday, the basket price averaged $24.50.
Oil prices tumbled Monday on news of Iraq’s expected return to the market.
August contracts of light, sweet crude were trading 28 cents higher Tuesday at $26.23 a barrel on the New York Mercantile Exchange. North Sea Brent crude for August delivery was 34 cents lower at $25.30 a barrel on the International Petroleum Exchange in London.
Although the cartel’s decision came as no surprise, the twist in U.N. diplomacy toward Iraq caused oil prices to plunge and led some OPEC members to question whether they shouldn’t consider actually cutting production now to forestall further erosion in prices.
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