Steady OPEC Output Possible

Oil prices have recovered from a low of US$32.40 in December 2008. Provided oil prices stay firm, OPEC could decide to keep production levels unchanged when it meets in Vienna on May 28, Iraq's Oil Minister said on 14 May. Oil prices have recovered from a low of US$32.40 in December 2008 to a six-month high near US$60 mid May 2009 - still below the roughly US$70 a barrel many developers and the Iraq oil minister ultimately consider necessary. "If the trend continues and prices improve a bit further, then perhaps OPEC will keep ... the current production level," Hussain Al Shahristani said in an interview.

"On the other hand, if they feel there is more crude in the market to absorb, then OPEC will have to look at other options." Inventories in the United States are near their highest for around 19 years. In addition, an estimated more than 100 million barrels of oil and refined products are held in floating storage. At the same time, demand has fallen sharply compared with last year. Shahristani said he was worried about the quantity of surplus oil.

"If the trend continues, there is no point producing," he said. "It would be best to keep it in the ground." At the Organisation of the Petroleum Exporting Countries' last meeting in March, oil stocks were already high and demand was weak, but the group said it would limit its action to compliance with existing quotas.

Refraining from a deeper cut to tighten supply and drive up the price, it said it would settle for cheaper oil, which was then just below US$50 a barrel, to help nurse the world economy back to health. Those developing new oil production have cited between US$70 and US$80 as a good investment price and Shahristani agreed at least US$70 a barrel was necessary.

Iraq has other pressing reasons for needing prices above current levels and Shahristani said it would have to use foreign currency reserves and soft loans unless oil became more expensive. - Arabian Business