VIENNA, Austria AFX - OPEC will likely hold its oil production steady for now - but it's casting a wary eye on prices as the cost of crude plummets to five-month lows.
The Organization of Petroleum Exporting Countries, which has begun its formal meeting in Vienna today, is expected to maintain its output quota of 28 mln bpd.
With supplies outstripping demand but markets still jittery, key members of the 11-nation cartel said they see no reason to tighten or loosen their taps, and OPEC's own advisory panel urged the group to keep production at current levels.
But tumbling prices have grabbed OPEC's attention, and Iran's oil minister hinted that a cut in output targets could come before winter in the Northern Hemisphere.
Unofficially, there has been talk of drawing up an action plan if prices dip below 60 usd a barrel - a level that could prompt the cartel, now pumping at close to capacity, to start tightening its taps.
Iran's Kazem Vaziri Hamaneh told reporters today that cartel members worried about falling oil prices would debate the option of a cut in output by the end of the year.
"We're going to discuss it," he said, adding that he doesn't want to see crude fall below 60 usd a barrel.
Light sweet crude dipped below 66 usd today even as markets expect OPEC will leave its production targets untouched.
US crude has plunged since hitting a record 78.40 usd in mid-July, just after fighting erupted in Lebanon. Each 10 usd drop in price, analysts say, translates into a 25-cent drop at the gas pump.
"This is the time to talk about" an eventual cut, OPEC President Edmund Daukoru, Nigeria's oil minister, said today. "Definitely we will not be producing more, that's for sure."
Venezuelan oil minister Rafael Ramirez also said the group needed to consider scaling back production at some point, noting that crude inventories "are above normal levels".
OPEC, which meets about 40 pct of the world's demand for crude, wants to see whether prices are in a free fall or are merely reacting to high inventories, the cessation of hostilities in Lebanon and progress in talks between Iran and Western powers trying to contain its suspect nuclear programme.
"Crude oil volatility appears to have subsided over the past year, due to ample supply, rising OPEC spare capacity, plentiful strategic reserves and abundant commercial crude inventories," Daukoru said in his opening address today.
"Security of demand must go hand-in-hand with security of supply as a means of achieving market stability."
Excluding Iraq, which is not part of OPEC's quota system, the group is now pumping about 27.5 mln bpd - half a million barrels under its target - said Ali Naimi, oil minister of Saudi Arabia, the world's No. 1 oil exporter.
Naimi said today he is "very optimistic" about global oil demand next year, playing down concerns that world economic growth may be slowing and characterising recent price drops as insignificant "blips."
Supplies remain ample despite concerns over Iran, losses from BP PLC's leak-prone Alaskan oil pipelines, chronic outages in Iraq and attacks on oil infrastructure by militants in Nigeria - Africa's biggest producer.
US inventories are at their highest levels since 1998, the Department of Energy reported last week.
Iraqi oil minister Hussain al-Shahristani said today his government will reinforce its military presence in the north of the country to protect oil facilities targeted by saboteurs. Iraq produces more than 2 mln bpd.
Jason Schenker, an analyst with Charlotte, N.C.-based Wachovia Corp., predicts global demand for crude will slacken as economic growth slows, pushing prices down even further - especially if the US, as some economists forecast, slips into recession next year.
"I think there's still room for crude to fall," he said. "There's no shortage of oil anywhere. Right now, this is a fundamentally well-supplied market. The supply side is very lush."
Iran's influence on prices has eased, Schenker said, because Tehran has said it would not cut off oil supplies and there is little expectation the UN Security Council could overcome resistance from Russia and China and impose significant economic sanctions.
"You're likely to see slowing growth, and with it, a slackening demand for oil," he said.
Analysts said prices could face further pressure in 2007 if production from non-OPEC nations such as Angola, Brazil and Caspian Sea countries like Azerbaijan rises significantly as expected.
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