OPEC hints at price-cutting moves ahead of Beirut talks

OPEC hints at price-cutting moves ahead of Beirut talks

Amelie Herenstein, Agence Frabce-Presse, Paris

With just days to go before a crucial ministerial meeting, the Organization of Petroleum Exporting Countries (OPEC) has put out signals suggesting that a substantial hike in production could be in the offing as a means of bringing down oil prices.

The president of OPEC, Purnomo Yusgiantoro of Indonesia, has said the cartel would study several options in Beirut on Thursday. But there now appears little doubt that oil markets can expect to receive more crude.

OPEC's current output ceiling is 23.5 million barrels a day, but its actual production is estimated at 25.5-26 million barrels a day, with most members already pumping at their maximum.

But despite such supply levels, oil prices have been on the rise for months, putting OPEC under heavy pressure from consuming countries to boost output and raising sharply the profile of the Beirut ministerial meeting.

Yusgiantoro has said OPEC could increase its production quota by 2.0 to 2.3 million barrels a day, options that have already been deemed insufficient by the market and consumers in light of the cartel's current output excesses.

Another approach would be to increase quotas by more than 2.0 to 2.3 million barrels a day, notably as OPEC kingpin Saudi Arabia last week proposed a quota increase of 2.3 to 2.5 million barrels a day.

Saudi Arabia is practically the only OPEC member that has the capacity to implement such a hike.

Yet another possibility emerged on Friday as a source close to OPEC said a suspension of OPEC production quotas was an option that could also be discussed in Beirut.

"Suspending the quotas could be one of the options available to the organization to send a strong message to the markets that OPEC is doing something real to curb oil prices," he said.

"Our commitment has not changed and it will never change. We have a mission, we have a clear vision and a clear mission. We need to stabilize the oil market, stability is in our interest and in the interest of the entire global community."

Wall Street Journal Europe earlier reported that OPEC producers could allow each member to put as much oil as it wanted on the market, which would in effect mean a suspension of the output quota mechanism, in order to bring prices back down below US$40 a barrel.

The paper said that in exchange for a suspension there could be a significant expansion in OPEC's current $22-$28 a barrel price band, a step several members have been advocating to compensate for lost revenues caused by a weakening dollar.

While consumers are clearly looking for a major surge in OPEC output, its potential impact on prices remains difficult to predict given other factors affecting the market, notably insufficient refining capacity, the level of commercial stocks and geopolitical uncertainties.