Kuwait says OPEC should raise production at December 14 meeting

By Margaret McQuaile in London

November 14, 2011 - OPEC should increase crude production when it meets on December 14 in order to avoid an oil price spike, Kuwaiti oil minister Mohammed al-Busairi said November 13.

The producer group's Gulf Arab members have been relatively quiet on OPEC output policy in the runup to the December meeting, the first since the acrimonious June 8 conference when ministers failed to reach agreement on production levels for the second half of the year.

But Busairi, speaking on the sidelines of a meeting of gas exporting countries in Qatar, said: "It would be logical and sensible to raise production while taking into consideration the need to avoid a supply glut."

Busairi's comments, reported by official Kuwaiti news agency KUNA, convey the essence of OPEC's current dilemma: whether to continue to produce freely to prevent oil prices from rising further or, given the deep concerns about the impact of the eurozone crisis on the fragile global economy, whether to reintroduce some kind of limit on production.

This dilemma is compounded by the faster-than-expected recovery of crude production in Libya which, according to its top oil official, is already pumping 600,000 b/d and is set to reach 800,000 b/d by the end of the year -- half its pre-uprising level of 1.6 million b/d.

OPEC's June meeting ended without agreement when Iran and several other countries rejected a proposal from OPEC kingpin Saudi Arabia to increase actual production, estimated at 28.8 million b/d for all 12 members in April, by 1.5 million b/d to 30.3 million b/d.

Saudi oil minister Ali Naimi said the kingdom and other Gulf producers would raise output unilaterally to ensure that world oil markets did not go short of oil.

The Saudis regard the previous agreement, agreed in late 2008 when oil prices were tumbling to levels below $40/barrel and which set a target of 24.845 million b/d for 11 members but not Iraq, as defunct.

But Iran, which holds the OPEC presidency this year, says it will press OPEC in December to uphold the previous agreement.

Kuwait's Busairi said the absence of an agreement meant that it was left to individual members to determine their output levels.

"Should there be agreement at the next OPEC meeting to raise production, then the official quotas of each member will rise," he said, but without explaining what baseline would be used for any increase in individual output shares.

He said the market would need more oil, even with the return of production from fellow member Libya.

OPEC's crude basket has averaged $107.35/barrel for the year to date, well above the 2010 average of $77.45/barrel.

The OPEC secretariat in Vienna said on November 8 in its long-term outlook that it saw demand for OPEC crude increasing slowly over the next few years, to 31.3 million b/d in 2015 from 29.3 million b/d in 2010.

A Platts survey of OPEC and oil industry officials and analysts estimated the group's October output at 30.05 million b/d, including Libya at 350,000 b/d.

OPEC said that it had raised the price assumption on which its reference case projections were based by $10 to $85-$95/barrel for the current decade, having taken into account price behavior since the publication of the 2010 Outlook, the impact of dollar exchange rate movements on recent prices and potential future developments, signals from futures prices, and also "a slight reassessment of how upstream costs might evolve."

It was evident, OPEC said, that the previous $75-$85/b nominal price assumption of a year ago might be too low.

"For example, coal-to-liquids (CTLs) backstop prices could be in the range of $74-85/b, and the price needed to support Canadian oil sands projects at internal rates of return above 10% suggest higher prices than previously assumed," it said. "Cost curves also show that at high prices, vast amounts of non-conventional oil would be economic," it added.

OPEC said in its outlook that the global economy had recovered more rapidly in 2010 than had previously been assumed but warned that the recovery was increasingly showing signs of weakness.

"Two developments seem possible from here. The first is that the global economy will be marked by below average trend growth, in combination with high unemployment in developed economies and continuing global growth imbalances. And the second is the potential failure of the current support schemes and mechanisms, which would shock the global economy and push it back into decline. At present, this seems the less likely scenario, but it cannot be ruled out altogether," it said.

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