Opec warns of oil supply cut

Opec fears a sharp drop in prices next year

The Organisation of Petroleum Exporting Countries (Opec) on Monday rubber-stamped an agreement to lift crude oil output - but warned it might decide to cut production early next year.

The warning of an output cut comes despite persistently high oil prices, with the world benchmark Brent blend remaining at more than $32 a barrel in Monday morning trade in London.

Opec had previously said it wanted prices to remain within a $22-28 a barrel range and would lift or reduce output to help achieve this.

However, the producers' cartel said it was now more concerned that its four agreements this year to increase supplies might bring about a supply glut.

End of stability mechanism

It contends - and many analysts agree - that the high price of crude is not because of insufficient production.

The problem is that stocks of oil products, particularly heating oil, are low.

Traders are concerned that if the winter in North America and Europe is unusually cold, there might be shortages, so heating oil is relatively expensive.

That in turn affects the price of crude.

After the northern hemisphere winter, when product demand normally falls, crude prices could drop sharply - an outcome producers are keen to avoid.

"The market is getting perhaps a little saturated and there is a [crude] stock build-up which is likely to hit us... later in the new year," Opec secretary general Rilwanu Lukman said.

"It is a matter of being prudent and careful while moderating prices."

Opec's latest meeting confirmed the move earlier this month to lift crude output by 500,000 barrels a day, in line with an informal agreement to do so if prices remained above $28 a barrel for 20 consecutive working days.

But Opec sources indicated that it would be the last such move this year, effectively closing the door on the price stability mechanism.

Opec said it would next reconvene in Vienna on 17 January for a special meeting to discuss output restraint.

Acrimonious jockeying

At its latest meeting, Opec also confirmed a decision to install its president, Ali Rodriguez - Venezuela's energy & mines minister - as its new secretary general, replacing Mr Lukman who is retiring.

The appointment followed two years of sometimes acrimonious jockeying for the position among Opec members, with Saudi Arabia, Iran, Iraq and Libya all proposing candidates for the post and refusing to withdraw them until the compromise candidate emerged.

Mr Rodriguez - like his country, Venezuela - is known as a price "hawk", preferring higher prices and showing little enthusiasm for measures that might help lower them.

He has maintained that current price levels are merely "reasonable" rather than high while some other members, notably Saudi Arabia, favour lower prices of about $25 a barrel.

The new administrative arrangements also include Algeria's Oil Minister Chakib Khelil replacing Mr Rodriguez in Opec's rotating presidency.