ABU DHABI, 9 November 2006 — Gulf oil producers yesterday decided to drop a project to build an oil pipeline bypassing the strategically vulnerable Strait of Hormuz between Iran and Oman on the grounds it was not feasible.
Nearly 20 percent of the world’s total oil supply flows through the sea channel at the mouth of the Gulf. The flow is around 16-17 million barrels of oil per day (bpd), making it the world’s most important shipping chokepoint.
Iranian leader Ayatollah Ali Khamenei warned in June that oil exports from the Gulf region could be seriously endangered if Washington made a wrong move over Iran.
Oil exporting Gulf states have been studying contingency plans for any shipping blockage through both the Gulf and the Red Sea. “It was agreed to accept the results of a study about the project to build a pipeline to transport Gulf oil in case the Strait of Hormuz is closed, whereby the study recommended that this project is not feasible,” said a statement issued at a Gulf Cooperation Council oil ministers’ meeting.
Saudi Arabia and its Gulf neighbors assessed the impact of OPEC’s recently agreed 1.2 million barrels per day output cut yesterday and whether a further reduction will be needed before year end.
Officials dismissed a US government agency report OPEC would push through barely 60 percent of the planned supply curb. “All of OPEC is committed,” United Arab Emirates’ Oil Minister Mohammed bin Dhaen Al-Hamli told reporters after the meeting.
Saudi Arabia and other Gulf OPEC members have said they see scope for further supply cuts when OPEC next meets on Dec. 14, pointing to high fuel stocks in top consumer the United States as evidence the market remains oversupplied. “What we are concentrating on now is balancing supply and demand,” Qatari Oil Minister Abdullah Al-Attiyah told reporters.
High global inventories were partly responsible for oil’s 25 percent drop from a July peak of $78.40 a barrel. The speed of the decline forced OPEC to agree its first output cut in two years at an emergency meeting in Qatar last month.
Minister of Petroleum and Mineral Resources Ali Al-Naimi says bringing inventories in consumer nations into equilibrium is the main aim of the group that pumps more than a third of the world’s oil. “We don’t care about the price,” Al-Naimi said on Tuesday. “We care about the market being in balance.”
Attiyah agreed another cut may be necessary at OPEC’s Dec. 14 meeting in Abuja. “But I cannot predict now what the quantity will be,” he added.
World oil prices rose strongly yesterday following a larger-than-expected fall in US stocks of distillates, which includes heating fuel, ahead of the peak-demand northern hemisphere winter.
New York’s main contract, light sweet crude for delivery in December, added 82 cents to $59.75 per barrel in pit trading. In London, Brent North Sea crude for December delivery gained 85 cents to $59.33 per barrel in electronic deals.
“The market is reacting to the 2.7 million draw in distillate, which is basically three times more than expected,” said Societe Generale analyst Deborah White.
The US Department of Energy (DOE) said that levels of distillate products, such as heating oil and diesel, sank 2.7 million barrels to 138.6 million in the week to Nov. 3. That was far bigger than the expected fall of 800,000 barrels. However, warmer US weather should allow them to bounce back in the coming weeks, traders said.
The DOE added that inventories of crude oil rose by 400,000 barrels to 334.7 million. Analysts had expected a rise of 750,000 barrels. Gasoline reserves fell 600,000 barrels to 204.0 million barrels, against forecasts for little change.
Meanwhile, Venezuela will work to prevent oil prices from falling below $50 per barrel, President Hugo Chavez said yesterday. Venezuela, the fourth largest supplier of oil to the United States, has been a consistent OPEC price hawk and at times has called for a $60 minimum for international oil prices.
“Today we are determined to prevent the price (of oil) from falling below the floor of $50, and we will keep (prices) there,” Chavez said during a press conference with foreign correspondents in Caracas. It was not clear if he was referring to international oil prices or to Venezuela’s crude oil basket, which last week closed at $49.38.
A day earlier Energy Minister Rafael Ramirez told reporters that $60 per barrel was a fair price for crude produced in the United States.
