MercoPress. South Atlantic News Agency

Venezuela puts pressure on Opec to cut its output

The next meeting of oil ministers from the Organisation of the Petroleum Exporting Countries may be more than two weeks away but Venezuela has fired the first salvo. It has stated that the oil cartel should cut its output by up to 1m barrels a day.

The call from Opec's fourth biggest producer comes days after the cartel trimmed the demand outlook for this year, and follows a sharp fall in prices this week. The drop was triggered by swelling oil and petroleum product inventories in the US, the world's biggest oil consumer.

Rafael Ramirez, Venezuelan energy minister, said that for the level of demand there was overproduction of about 1m barrels a day.

"I think we should cut between 500,000 and 1m," said Mr Ramirez, who is one of the most hawkish ministers in Opec.

Traditionally Opec has cut supplies in spring and summer. But this changed last year with China emerging as the world's second biggest oil consumer.

With global oil production operating close to capacity there was little flexibility to boost output if there was a severe supply disruption.

However, the prospect of Opec cutting oil supply when prices remain near $60 a barrel, not just for delivery now but for the next six years, would be a tough political act.

Opec production dropped last month to 29.65m b/d, its lowest level in more than a year, due to Iraqi oil output hitting its lowest point since the US-led invasion three years ago. "There are to 2m-5m barrels a day missing because of Iraq," Thierry Desmarest, chief executive of Total, the French oil company, said on Thursday.

He said there had been plans to double Iraq's capacity once sanctions were lifted. But the war had "completely changed the picture".

Iraq's chaos meant Opec had very low spare production capacity to use in case of a sudden shortfall in world oil supplies.

This meant the oil price now rose quickly because of political concerns, such as Iran's nuclear programme, but it "did not have time to come back before there was the next problem".

The benchmark US oil price, West Texas Intermediate, added 75 cents to $58.40 a barrel, but it is more than $10 down so far this month following a mild January in the US, which pared consumption of winter heating fuels.

This in turn has pushed US crude inventories to their highest level since last summer and petrol stockpiles to a near six-year high, following a surge in US imports of petroleum products.

Opec has kept a close eye on inventories because the cartel does not want them to rise too high as that may prompt refiners to use their stockpiles rather than buy more oil from exporters.

Alexandre Kervinio, energy analyst at Société Générale, said oil inventories in the US and Europe were up more than 12 per cent and sufficient to last 45 days.

This is well below the comfort zone for Opec, which last year said it was satisfied with 55 days of forward consumption cover. (FT)