Thursday, May 31, 2012

(This story was originally published Wednesday.)

LONDON (Dow Jones)--OPEC's overproduction has negatively impacted oil prices and could destabilize markets going forward, Iran's representative with the group said Wednesday.

Coming ahead of a crucial June 14 meeting of the Organization of Petroleum Exporting Countries, the remarks suggest mounting concerns among some producers over whether it may end up pumping too much for its own good.

Speaking to Dow Jones, Muhammad Ali Khatibi, Iran's OPEC governor, said that if the group "continues to produce like it did in the last two months, definitely there will be a stock-build situation."

"If stocks are higher than expected, it's dangerous for the market situation," he added.

Despite agreeing to a ceiling of 30 million barrels a day in December, OPEC has boosted production by 1 million to 2 million barrels a day--depending on estimates--as Arab producers in the Persian Gulf sought to tame rocketing oil prices.

The output boost--coming amid mounting concerns over the euro zone and easing geopolitical tensions--has contributed to a $20 drop in the per barrel futures price.

"Definitely, if OPEC produced around 30 million [a day as agreed], the price would be in a different shape," Khatibi said.

"I believe everybody should stick to the agreement of OPEC," the Iranian official said. "Demand is not in good shape compared to the last meeting."

Amid tepid consumption, the extra crude has gone to storage, reversing two years of decline in global inventories and bringing U.S. oil stocks to levels not seen in over two decades.

Though oil inventories typically increase in the first half of the year because many refineries shut down, the Iranian official pointed to "unusual stock building" trends this year.

"If the current situation [of overproduction] will continue, the stock-building situation will be in more than two quarters," he warned. He said, however, that there were too many factors--from geopolitics to speculation--to predict the future direction of oil prices.

-By Benoit Faucon; Dow Jones Newswires; +44 20 7842 9266; benoit.faucon@dowjones.com

(END) Dow Jones Newswires

31-05-12 0358GMT