Oil prices dip as OPEC mulls output boost

7th June 2011, Comments 0 comments

Oil prices fell on Tuesday as traders sat tight on the eve of an OPEC output meeting which may decide to increase the cartel's crude output despite faltering energy demand, analysts said.

Brent North Sea crude for delivery in July dipped nine cents to $114.39 a barrel in midday London trade after a modest rise in early deals.

New York's main contract, light sweet crude for July, fell 50 cents to $98.51.

The Organization of the Petroleum Exporting Countries (OPEC), whose dozen member countries together pump 40 percent of the world's oil, meets on Wednesday in Vienna.

Delegations were arriving in the Austrian capital on Tuesday amid growing fears that high crude prices could further dent world economic growth and energy demand.

OPEC "countries including Saudi Arabia want to hike production and keep prices lower," said Ker Chung Yang, a commodities analyst at Phillip Futures in Singapore.

"Only Iran and Venezuela may not want to hike production and want to keep prices higher," he added.

Most analysts expect the cartel to leave production quotas unchanged despite a recent jump in crude oil prices spurred by unrest in the Arab world, particularly in Libya.

"The market is still in a limbo with fears of demand destruction fuelled by persistently bearish macro numbers, not least by much lower than expected US May non-farm payrolls," said Andrey Kryuchenkov, an analyst at VTB Capital financial group.

"On the supply side, we are still uncertain over the output shortfall from Libya, where supplies are unlikely to come back on stream in the near future. "However, global inventories are still gradually tightening and the market remains prone to a price spike amid any potential disruptions or fresh geopolitical unrest" in the Middle East and North Africa region, he added.

Against such a backdrop, Iran's OPEC representative said on Monday that the Islamic republic was against any increase in OPEC output.

"There is no need to increase production of OPEC countries," Mohammad Ali Khatibi was quoted as saying on the state television website.

"The market is balanced ... the downward trend in oil prices means that producers must be very cautious before any increase in output," he said.

The country currently holds the rotating OPEC presidency for the first time since the 1979 Islamic revolution.

© 2011 AFP

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