HOUSTON, June 1 -- With Western crude inventories at acceptable levels and market prices within their designated band, there is little reason for members of the Organization of Petroleum Exporting Countries to make any production changes at their June 5 meeting in Vienna, analysts said Friday.
"The only reason they might adjust their production is if Iraq cuts exports in its dispute over proposed changes in the UN sanctions. Saudi Arabia has already said it would step in to take up some of the slack if that occurs," said Robert Morris, energy analyst at Salomon Smith Barney Inc.
Otherwise, Morris said, "Oil inventories are up significantly, versus a year ago. And OPEC members have been able to keep prices within their preferred range. So there's no reason for them to fix what's not broken."
The best strategy for OPEC at the moment is to "hold pat on production," said Dale W. Steffes, principal and founder of Planning & Forecasting Consultants, Houston, who has attended OPEC meetings in the past and worked for some of its members.
"They have a safety valve, in that Saudi Arabia and a few others have about 500,000 b/d of extra capacity that they can run up and down as needed. They could bring on that additional production in a couple of weeks," he said.
Earlier this week, Venezuelan President Hugo Chavez Hugo Chavez said he expects no immediate changes in OPEC production.
Kuwaiti Oil Minister Adel K. Al-Sabeeh also said he's satisfied with current international oil prices.
"Stockpiles of crude are at okay levels, and the (US supply) problem is with refining capacity and not with crude supplies," said Chakib Khelil, Algeria's oil minister (OGJ Online, May 31, 2001).
Morris and other analysts agree that OPEC may have to increase production later this year to meet market demands.
The International Energy Agency in Paris is forecasting that world demand for oil will increase by 1.6 million b/d to a total 76.5 million b/d in the third quarter. Ali al-Naimi, Saudi Arabia's energy minister, has said that, if necessary, OPEC could by year-end restore the 2.5 million b/d of product that it cut earlier this year.
There is talk that Saudi officials have promised the George W. Bush administration to do whatever it takes to avoid a major oil price spike, if US authorities will refrain from public arm-twisting to get OPEC to agree to an immediate increase.
Certainly, the Republican administration seems to have adopted a policy of quiet diplomacy with the oil cartel, despite pressure from Democratic members of Congress to push OPEC members to step up production.
For now, Morris said, OPEC's strategy of increasing production during the periods of peak winter demand and cutting production during the early spring and summer slack seems to be working well by keeping oil prices within what that group claims is the best range for both producers and consumers.
However, Steffes said, "In the long run, OPEC will have to cut production as new supplies of oil come onstream in the deep waters of the Gulf of Mexico, in eastern Canada, Angola, and offshore West Africa."