Arguments stack up for steady Opec oil output

London: Oil above $60, accelerating demand growth and falling fuel stocks in consumer nations are likely to push Opec to keep output steady when it meets on March 15.

In fact some analysts say the group's next change to production levels, some time later in 2007, may well be to the upside.

"There is little fundamental argument for a cut now. Oil prices are on a rising trajectory and market balances are tightening," said Paul Horsnell, an analyst at Barclays Capital.

"If anything, Opec should be starting to think about increasing production later in the year."

The International Energy Agency, the US government and Opec itself see global oil demand picking up by more than one million barrels per day to around 86 million bpd this year, with the biggest increases expected in the third and fourth quarters.

Even the most conservative projection, Opec's own, puts demand for Opec oil at above 30 million bpd. That number includes Iraq and new member Angola, both of which are exempt from output restrictions for the time being.

A majority in Opec, including top oil exporter Saudi Arabia, have said -barring a price collapse -they prefer to stick with an output target of 25.8 million bpd for the other 10 members when the group meets in Vienna on March 15.

"With the market going the way it is, I don't think that we need to cut," Opec 's head of research, Hasan Qabazard, said recently.

At its previous two meetings, in October and December, Opec agreed to remove a total 1.7 million bpd, or roughly six per cent of production, from the market. The organisation has so far delivered one million bpd of the reductions.

"If we are able to improve the percentage of the cut, this will do the trick," Abdullah Al Badri, Opec's new Secretary-General recently told Reuters.

Some analysts argue the group that pumps more than a third of the world's oil may have gone too far with its February reduction.

"Based on both the US Department Of Energy and our own global projections, the last cut may have been unnecessary," said Horsnell.

Oil is well down on its July 2006 peak of $78.40, but at $62 more than $10 up on mid-January levels and three times the price at the start of 2002 when Asian demand kicked in.

But an equity sell-off that spilled over into oil earlier this week may be a cause for concern for oil producers.

Oil fell below $60 early this week after a slide on global stock markets sparked concern of slowing economic growth in top consumers the US and China.