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OPEC leaders don't tip hand on next oil move

Amid speculation that production may be cut again, there are conflicting reports of current inventory levels.

By ASSOCIATED PRESS
Published December 12, 2006

VIENNA - To cut or not to cut? The mixed signals being sent by OPEC nations on the need for reducing output are keeping traders guessing ahead of the organization's meeting Thursday.

Prices have risen from recent lows to above $60 a barrel, removing some of the urgency behind calls from members of the Organization of Petroleum Exporting Countries to cut production further when oil ministers meet in Nigeria.

At the same time, ministers are keeping a wary eye on inventories - the amount of crude in stock in the United States and other major oil customers. The most recent complete figures, from the end of September, showed supplies in the major industrialized nations at 2.76-billion barrels.

Those inventory levels - the highest in eight years - could speak for further cutbacks on the heels of OPEC's decision last month to reduce output by 1.2-million barrels a day. Oil minister Ali Naimi of Saudi Arabia, the OPEC powerhouse, said last week that 100-million barrels must be whittled from stockpiles in industrialized nations.

"The sense is that supply is still higher than demand, so another cut may be necessary," said Eshan Ul-Haq, chief analyst at Vienna's PVM Oil Associates.

Still, newer statistics indicate that the September inventory figures may not be revealing the true state of oil market affairs.

The latest weekly snapshot from the U.S. Energy Information Administration, released last week, showed crude stocks in the world's largest petroleum consumer plummeted by 53.5-million barrels since the end of September. That nearly negated a record buildup of 56.7-million barrels accrued in the second quarter of the year.

That leaves a mixed picture, at least for the United States - crude stocks falling to their lowest level since June but remaining at a 12-year high for this time of year.

Even considering that oil derivative inventories - gasoline, diesel and heating oil - have been falling, total oil and derivative stocks are at their highest level since 1998.

That complex picture - and prices above the red line of $60 - could lead the ministers to opt for something less than an immediate cut but more than maintaining the status quo.

According to Oil Movements, which tracks tanker shipments, OPEC has implemented only two-thirds of its planned 1.2-million barrel cutback. Prince Turki al-Faisal, the Saudi ambassador to the United States, said last week his country sees $60 as an acceptable benchmark price - and recent prices have surpassed that mark.

[Last modified December 12, 2006, 00:05:26]