Opec moves to squeeze output

Opec has called for its members to honour their production quotas in what amounts to a warning to key oil producers to cut output. "Except for Iraq and new members who are outside the Opec quota, the rest of the members should produce in the framework of their committed quota," Chakib Khelil, the Opec president, was quoted as saying today in Tehran by the Iranian state news agency, Shana. His comments followed an oil price decline to below US$115 (about Dh422) a barrel during weekend trading on the New York Mercantile Exchange, after peaking at $147.27 a barrel a month earlier. An unidentified Opec official said today that the group of 13 oil producing nations was "concerned" about recent price movements and would not want to see oil prices crash, Dow Jones reported. A number of Opec states have pumped oil above their quotas in recent months, especially Opec's top producer, Saudi Arabia, which has raised its crude output by 500,000 barrels per day (bpd) since March to reach 9.7 million bpd last month, its highest production level since 1981. The kingdom's Opec quota is 8.943 million bpd. Today, oil prices rallied from their 14-week low to more than $116 a barrel over concerns that military action in Georgia could affect Central Asian oil supplies to Europe. They remain about 21 per cent below last month's record high. In a new report, energy analysts at Lehman Brothers, a leading investment bank and financial services company, said oil prices may have peaked. "Barring a physical disruption that may temporarily spike prices, we judge that oil prices have peaked for the next few years," wrote an analyst team led by the bank's senior energy economist, Edward Morse. "In our view, the recent correction in oil prices was overdue, and softness awaits in the next 12 months." The report pointed to 1.5 million bpd of new oil production expected next year from Saudi oilfields that are now under development. It predicted an inventory build of 1.4 million bpd of crude during the second half of this year, due to forecast non-Opec oil supply additions. "A large overhang is developing in distillate, the cornerstone of the price drive upwards," the analysts added. Distillates include such key refined petroleum products as heating oil and diesel. Where oil prices are headed in the short term, however, is likely to depend on whether armed conflict between Russia and Georgia causes a physical oil supply disruption. That would affect the price of the European benchmark Brent crude oil, with the potential to send oil prices higher internationally, analysts said. Although Georgia does not export any of its own crude, it is a key transportation link in the US-backed southern energy corridor connecting the oil-rich Caspian Sea region with western markets, bypassing Russia. The Baku-Tbilisi-Ceyhan (BTC) pipeline traverses Azerbaijan, Georgia and Turkey and transports Azeri light crude to a deepwater Mediterranean terminal. Azeri crude pricing is typically based on a Brent contract. Since last Tuesday, when a fire broke out on the Turkish section of the pipeline for causes unrelated to the Georgian conflict, BP - the British oil company that operates BTC - has diverted the pipeline's throughput of about 800,000 bpd to a Georgian Black Sea port, via an alternative pipeline. As of today, it was unclear whether Russia would follow through on threats of a naval blockade against Georgia. Reuters reported yesterday that Georgian oil ports were only partially operating and were not loading any oil tankers. BP said today that the Turkish pipeline fire had been extinguished, but that shipments through the BTC pipeline would remain suspended for up to two weeks for cooling down and repairs. Kurdish separatists from the Kurdish Workers' Party (PKK) have claimed responsibility for an explosion that started the fire. Last week, following the pipeline's closure, Georgia launched an offensive aimed at regaining control of the breakaway South Ossetia province, to which Russia responded with heavy artillery attacks on Georgian territory. The fighting has continued, despite Georgia's withdrawal of its troops from South Ossetia. Helping to curb the oil market reaction to the conflict, the US dollar has continued to strengthen against the euro, which today fell to $1.4975. Earlier this year, a weak dollar helped to boost oil prices, which are denominated in the US currency. @Email:tcarlisl@thenational.ae