OPEC facing likely output cut to prop up prices in '06
LONDON, Nov 22 (AFP): The Organisation of Petroleum Exporting Countries (OPEC) will likely cut production in 2006 to prevent a drop in oil prices next year, the Centre for Global Energy Studies (CGES) said in its monthly report published Monday.
"Unless oil demand growth rebounds strongly in 2006, OPEC will face the need to make output cuts in order to defend prices," the influential report said.
"The size and timing of the output cut will depend on the strength of underlying demand growth and the severity of the Northern Hemisphere winter, as well as the price level that the OPEC chooses to defend."
The CGES added: "Even if OPEC avoids having to cut its aggregate output, Saudi Arabia will come under pressure to reduce its own production as other member-countries bring new capacity into production next year."
At its last monthly meeting, OPEC maintained its official production quota at 28 million barrels per day (bpd) but said it will provide markets with an extra two million bpd if there was sufficient demand.
The oil cartel supplies roughly one third of total global crude production.
The CGES said it forecast a 'modest' growth in global oil demand next year, growing by around 1.4 per cent in 2005 and by a similar amount in 2006.
The research group also predicted a rise in non-OPEC production from countries such as Russia and the United States.
Meanwhile the need to reduce production levels might reawaken divisions between OPEC member nations which may disagree about oil price levels.
"Internal OPEC politics, which have lain dormant as long as most members have been able to produce as much as they can, will start to become an issue again in 2006," the CGES said.
"The price hawks, led by Venezuela and Iran, will probably seek to press members to defend a price level of 50 dollars per barrel, but Saudi Arabia regards this level as being too high, preferring... 45 dollars per barrel."
New York's main contract, light sweet crude for delivery in January, rose 54 cents to 57.75 dollars per barrel in electronic dealing Monday.
Crude futures have shed some 18 per cent since striking historic highs of 70.85 dollars in New York and 68.89 dollars in London on August 30 after Hurricane Katrina tore through US Gulf Coast energy facilities.