Opec seeks to keep oil price high

Opec has already cut oil production twice this year

The latest dispute between the United Nations and Iraq is overshadowing events at Tuesday's meeting of the Organisation of Petroleum Exporting Countries (Opec).

But as the oil ministers from the eleven-country cartel gather in Vienna, most seem determined not to let Saddam Hussein steer Opec's oil policy.

We are going to make sure that demand is met and the prices are stable

Chakib Khelil
Opec President

And with ministers downplaying the effect of a halt in production from Iraq, it looks unlikely that consumers will get any relief from high crude oil prices.

Opec exists in order to control the price of crude oil by adjusting the volume exported by its member countries.

If Opec decides not to raise oil production, then countries such as the UK can expect crude oil and petrol prices to stay high for the next three months.

Changing the price band?

Before Iraq stole the limelight with the announcement that it was to cease oil exports, most speculation centred on the future of Opec's agreed price band.

Last year, Opec agreed that it would try and keep the average price of a selection of crude oils between $22 and $28 a barrel.

Ali Rodriguez: supplies are sufficient for the market

If prices rose above $28/barrel for a certain period, then it would increase production. If prices fell below $22/barrel it would slash exports.

But ahead of the meeting, the markets were shocked when Venezuelan energy minister Alvaro Silva Calderon suggested that Opec should set a minimum price of $25 a barrel.

Such a change could significantly push up the costs of imported oil and filter through to petrol prices in most consumer nations.

Hoping for more oil

Economists say that high oil prices are worsening - or even causing - a global economic slowdown.

Non-Opec areas, especially North America and Europe, had been hoping for increased production.

They were supported by organisations like the Paris-based International Energy Agency, which last week suggested that Opec should raise production.

Ali Naimi is Opec's most influential oil minister

Already, rising energy prices have pushed up prices at the pump and boosted inflation across Europe.

And the United States has been suffering from record high gasoline prices.

Although the price spike in the US is partly due to a specific set of circumstances - mainly local problems at US refineries - high crude oil prices have undoubtedly aggravated the situation.

With the price of the Opec basket of crude oil nearer to the top than the bottom of the desired range, there was a little room for optimism that Opec would increase production.

Hostage to Iraq

But as ministers arrive in Vienna, most comments from Opec insiders have suggested that the cartel is perfectly happy with the current oil price, and does not favour a boost in output.

"For the time being the supplies are sufficient for the market," said Opec Secretary General Ali Rodriguez.

Adel Al-Sebeih: Current oil production is satisfactory

And many of the arriving ministers have indicated that they are not worried by Iraq's decision to halt exports.

Although Iraq accounts for almost 5% of world production of crude oil, Opec ministers are reluctant to ramp up production in case Iraq's decision proves to be short-lived.

"Opec does not want to increase production now and then be forced to cut back when Iraq comes into the market again," said Leo Drollas at London's Centre for Global Energy Studies.

And one Opec delegate, on the condition of anonymity, said that the cartel would not be "taken hostage by Iraq's suspension of crude exports".

Although Opec members are quick to say that Iraq will not dictate the agenda, there have also been some hints that the cartel is prepared to make up the shortfall from Iraq if its decision to cease exports is sustained.

"We are going to make sure that demand is met and the prices are stable," said Opec President Chakib Khelil.

So far this year, Opec trimmed production by 4% in March, and by 5% in January.