Weak dollar, big discounts dent revenue for Opec

DOHA - Opec producers are enjoying less of a windfall than US$50 ($70) oil prices suggest, as big discounts for their lower-quality crude and a weak dollar hit export earnings, Opec officials say.

The double drain on revenues has convinced Opec's second biggest producer, Iran, that the group should now pull back from a production surge that last month started to pull international prices down from record highs.

Opec ministers meet next week in Cairo and although the group is expected to leave quotas unchanged, Iran called for the cartel to mop up 900,000 barrels per day of leakage above formal supply limits of 27 million.

"I would say we in Opec have to go back to our quota first, because the market has two million bpd oversupply," said Iran's Opec governor, Hossein Kazempour Ardebili.

US oil prices have gained about US$17, or 50 per cent, this year, but Opec's basket of crude has risen only US$10, as the group's heavy, high-sulphur supplies are harder to process into transport and heating fuel.

"Prices are not high for my crude," said Kazempour.

He said Iranian oil was effectively selling at a US$18 a barrel discount to US West Texas Intermediate crude.

US crude futures are hovering around the US$50 a barrel mark.

Heavy falls in the dollar have also sliced into Opec members' purchasing power for goods and services from non-dollar economies like the eurozone.

"I'm very concerned about the weak dollar and that will reflect on oil producers' decisions," Qatari Energy Minister Abdullah al-Attiyah said on the sidelines of an energy conference in Doha.

The price of Opec's basket of crudes has held above its target of US$22 to US$28 for the whole of this year, but if the basket is converted into euros, it has largely stayed within range.

"At the start of 2003, the dollar and euro values of the Opec basket were similar, with the dollar at near parity with the euro," Barclays Capital said in a research note.

"Due to the weakness of the dollar ... at points over the past week, the value fell below €28 a barrel, representing a fall in price relative to the start of 2003."

Opec has previously cited the US currency's weakness against other major currencies as justification for keeping dollar-denominated world oil prices high.

The dollar is trading around US$1.3250 to the euro after going as low as US$1.3330.

Opec's top exporter, Saudi Arabia, was less concerned about the dollar's slide and the prospect that high Opec production is rebuilding stocks in consuming nations.

Saudi Oil Minister Ali al-Naimi said Opec would not consider switching from dollar-denominated oil sales, despite the decline in the value of the US currency.

Naimi also played down concerns that high Opec production would generate a large counter-seasonal build in oil inventories this winter, saying global stocks of petroleum products, including heating oil, remained below par.

"The [crude] supply is a little bit ahead of demand. Inventories are building comfortably," Naimi told a conference at the Royal Institute of International Affairs in London.

"I recognise some of the products such as heating oil are not at the right level but as refineries come back from turnaround the market will be better balanced."

Naimi said oil prices were being inflated by about US$10 to US$15 by fears of shortage and geopolitical tension and that the strength of the world economy suggested there had been little or no impact on growth from this year's oil price rise.

Attiyah said that despite the impact of a falling dollar, the cartel would not revise its official price target of US$22 to US$28 a barrel in Cairo.

- REUTERS