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Analysis – Opec Arab members want output rise

3 Jun 2011, 6.09 pm GMT

Analysis – Opec Arab members want output rise

London, 3 June (Argus) — Opec's Mideast Gulf Arab members are likely to push to raise the group's output target in Vienna on 8 June.

Arab Gulf producers want the output ceiling to reflect actual higher production, Opec delegates tell Argus. “The majority of Opec producers right now believe that it is the duty of Opec to supply the market with needed oil if they can,” a delegate says. “Secondly, there is a big gap between actual production within Opec — without Iraq and Libya — and the Opec quota,” he says.

Opec has left its output target unchanged at 24.845mn b/d since it agreed in Oran in December 2008 to cut 4.2mn b/d from supply measured against a September 2008 baseline. The agreement, made when crude was under $50/bl, looks increasingly outdated. Oil prices are $100/bl and Opec output has risen. Production by the 11 members excluding Iraq was nearly 1.3mn b/d above target in May, despite 1.5mn b/d of lost Libyan supply.

Opec has yet to make up for the shortfall in Libyan production. Output of 28.8mn b/d in May was still almost 1.2mn b/d down on January, before Libyan production was shut in. More oil is needed, as indicated by Opec's own forecasts for demand growth. The organisation projects the call on its crude to rise by 1.6mn b/d in the second half of this year compared with the first half.

“It is the responsibility of Opec to increase the ceiling to reflect the expected call on Opec crude in the second half of 2011 and to replace the missing oil from Libya,” the Opec delegate says. But Iran and Venezuela could oppose efforts to increase Opec's output ceiling. Both face production capacity constraints and are likely to resist any move that would cut their market share within the organisation.

“There is no shortage at all,” Iran's Opec governor Mohammad Ali Khatibi says. “The downward price trend over the last two to three weeks shows that. While we see no shortage, concern remains over the state of the world economy.” Opec is under pressure from the IEA to make more affordable supply available. The IEA warned on 19 May that high oil prices “risk derailing the global economic recovery”, saying “there is a clear, urgent need for additional supplies on a more competitive basis to be made available to refiners”.

Opec output may rise regardless of any decisions made in Vienna. Shipping data indicate an increase in exports from Saudi Arabia in June, although this crude will not arrive until the peak summer demand season is under way.

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