Opec should trim its oil output if demand continues to fall in slowing industrialised economies, Iran's Opec governor Muhammad Ali Khatibi said on Tuesday. Opec boosted output for the third consecutive month in July as prices peaked at over $147 a barrel. Top oil exporter Saudi Arabia pumped at the fastest rate for 27 years to meet growing demand.
But the price has since slipped $34 as record prices at the pump and the slowing US economy crimp demand. "If oil demand continues to slow then Opec should adjust its output accordingly," Khatibi told Reuters in an interview in his Tehran office.
"You can't increase supply when demand is falling. The key figure is demand." The official from Opec's second-largest producer sees the oil market as oversupplied by around 1.3 million barrels per day (bpd). He expects peak winter demand to absorb most of the excess - unbite out of consumption. The falling price would put pressure on high cost projects to produce more oil from shale, sands and in deepwater, Khatibi said.
"When the trend is downwards, investors stay away from high cost projects," he said. "The price is still high, but has fallen $30 in a very short time. The International Energy Agency (IEA) cut its forecast for 2008 demand for oil from the Organization of the Petroleum Exporting Countries (Opec) by 100,000 bpd in its monthly report on Tuesday as it raised the forecast non-Opec supply.
Opec President Chakib Khelil, speaking on a visit to Iran on Monday, urged the group to stick to agreed targets. Iran's oil minister has said Opec members should discuss observance of targets at its next meeting on September 9.
The producer group, supplier of more than a third of the world's oil, is overshooting its informal target, with Saudi Arabia leading the way. Khatibi said Iran is pumping around 4 million bpd of total capacity of around 4.3 million bpd. Iran's informal Opec target is 3.817 million bpd, although Khatibi said Tehran had never agreed with Opec's calculation of that target. Iran believed it was entitled to produce around 100,000 bpd more than that target, Khatibi said.
Sanctions by consuming countries that limit development of the oil and gas industry hurt consumers as well as the countries they penalise, Khatibi said. "Consumers need our oil," Khatibi said. "But sanctions stop development of oil production so it means consumers pay more. If we develop our oil industry for whom are we doing it? For consumers of course. They insist on more supply so they should remove obstacles to it."
The United States is the only country that has imposed sanctions on Iran's oil and gas industry. But the world's top energy consumer has put pressure on international companies to stay out as it looks to isolate Tehran over its nuclear programme.
Western powers fear Iran wants to build a nuclear bomb, while Tehran says it needs nuclear-generated electricity. Present and previous sanctions against Iran, Iraq, Libya and Sudan had probably cut potential production capacity by around 4 million bpd to 5 million bpd, Khatibi said.
Iran would like to see more international oil and gas companies involved in its energy sector, Khatibi said. "They bring technology, finance and competition," he said. But Iran was moving ahead with oil and gas expansion plans anyway and sanctions have forced more rapid home-grown development. "Necessity is the mother of invention," he said.
Analysts say the Islamic Republic needs technology from international companies to boost output from its ageing fields, to upgrade its refineries and to build gas exporting facilities. Khatibi said it was able to get the technology licenses it needs despite the sanctions. "Do you think only American and European companies have that technology?"