OPEC leaks oil to contain high prices

OPEC is leaking extra supplies to contain high oil prices and would prefer crude down about $2 a barrel, OPEC President Purnomo Yusgiantoro of Indonesia said on Thursday.

Purnomo, Indonesia’s energy minister, told Reuters that OPEC would prefer prices at $28 a barrel for a basket of crudes, down from more than $30 now. Minister Purnomo said: “We would like to have prices a little bit down, at the top end of the ($22-$28 OPEC target) range. OPEC has contributed what is necessary to produce to stabilise the price.”

The Organisation of the Petroleum Exporting Countries faces a dilemma at a meeting next month when it may need to cut production quotas to counteract a seasonal fall in demand in the second quarter.

High world oil prices could make such a move politically difficult, drawing criticism from major importing nations like the USA.

OPEC’s reference basket was last valued at $30.23, well above its official target range of $22-$28 a barrel. Benchmark US crude futures traded yesterday at $33.76 a barrel after hitting a nine-month high this week of $34.35.

Washington questioned OPEC policy last month after the cartel said high prices were justified by the weakness of the US dollar, the currency of world oil trade, which had hurt producers’ purchasing power.

Minister Purnomo said supply leaks by OPEC over official output quotas were helping to contain the market and that crude should fall as northern hemisphere winter demand ebbs.

“The member countries are fully aware that they need to stabilise prices at times like now. That’s the name of the game,” said Minister Purnomo. “Prices are high today but approaching spring we expect the prices will come down and down because inventories are filling up.”

A Reuters survey of OPEC output published Wednesday found the cartel in December pumped nearly 1.6 million barrels per day above its official ceiling of 24.5 million bpd in place since November. The OPEC president said a widely expected cut in output in February was not a foregone conclusion.

He said it was too early to judge whether or not lower supplies would be needed then to balance lower second-quarter demand. “I would say it’s really too early to say. A lot of analysts are saying that OPEC is meeting in Algiers to cut production, but I would not say that yet.”

Purnomo said OPEC’s Vienna-based secretariat was in the process of re-evaluating world crude supply-demand projections ahead of the meeting in Algiers on February 10.

“I think there is oversupply by March, but I have asked the secretariat to calculate the overhang.”

World demand in the second quarter normally falls short of supply, but OPEC must decide whether the supply overhang is likely to be big enough to warrant an output cut.