Vienna: Organization of Petroleum Exporting Countries (Opec) appeared poised to hold oil production quotas unchanged on Wednesday, with its ministers voicing satisfaction with current global crude prices.
Instead, the focus at the organisation’s meeting in Vienna was to be on persuading members not to sell more oil than their quotas permit.
Kuwait’s oil minister, Sheik Ahmed Al Abullah Al Sabah, said Opec’s markets monitoring committee would suggest to the 12-country group that oil output targets be held steady at the organisation’s meeting on Wednesday in Vienna. The gathering is being held in the evening since it falls during the holy month of Ramadan when Muslims must fast from dawn to dusk.
The recommendation offers further indication that ministers from the bloc—supplier of roughly 35% of the world’s crude—are turning their aim toward encouraging member discipline. Compliance with the output limits, which are designed to support prices, has been waning.
Prices are now roughly double their levels from December, when Opec announced its record 4.2 million barrel per day cuts from September 2008 levels. The price rally has been welcome news for cash-hungry member governments, but also a temptation to sell more oil.
US benchmark light sweet crude for October delivery was hovering at around $71 in electronic trading on the New York Mercantile Exchange. The level is well within the range that Opec kingpin Saudi Arabia has said it would like to see.
Saudi Arabian oil minister Ali Naimi, whose country is Opec’s top producer and most influential member, told reporters on Tuesday that crude’s current prices “is good for everybody: consumers and producers.”
Opec leaders are concerned a price spike could hurt the nascent global economic recovery after the world’s worst recession in decades destroyed demand for crude, the chief foreign revenue source for the majority of Opec’s members.
“The economy seems to be doing okay,” Algerian oil minister Chakib Khelil said, echoing other ministers. “Things look all right. Prices are holding.”
But even as he acknowledged that “lots of uncertainties remain,” Khelil said the careful implementation of the group’s last round of output cuts will help stabilise the market within the next six months.
“All we need to do is comply with what we have decided to do,” he said.
Adhering to those quotas has typically been one of Opec’s chief weaknesses.
“Compliance could be better,” Mohammed bin Dhaen al-Hamli, the United Arab Emirates’ oil minister, told reporters on Wednesday. But al-Hamli, too, discounted the need for an output cut, saying that “we are comfortable with the market at the moment.”
With quota adherence down to around 70%, the group can ill afford to look the other way at a time when global crude demand remains weak, oil inventories high, and major non-Opec producers like Russia showing little indication they are willing to do more than pay lip service to Opec’s calls for broader coordination on production.
Given their current overproduction, Opec “cannot say we’re going to cut because no one will believe them,” said John Hall, of London-based John Hall Associates. “Credibility matters.”
That puts Opec in a difficult position. Global crude inventories in the West remain well above the 52 to 54-days of forward cover the group sees as comfortable. Inventories of refined oil products generally in demand in winter months are also high, meaning that Opec cannot count on refiners to churn out more products and, in the process, run down crude stocks.
“If they leave things as they are, that makes sense, as we’re seeing signs of recovery,” said Olivier Jakob of the Switzerland-based oil consultancy Petromatrix. But with the recovery “still in the early stages I don’t think they want to rush in changing their output.”
The group’s current production target is just under 25 million barrels per day, but output figures excluding Iraq indicate Opec members are pumping around 26 million barrels per day, analysts say, adding that Angola, Iran and Venezuela have been particularly lax with their quotas.
Kuwait’s Al Sabah said on Tuesday while a quick rebound in demand for crude was unlikely, he expected a “noticeable improvement” in the first and second quarters of 2010.
That leaves the group will little room for error if it hopes to see current prices sustained through the year.
“I think we are going to stay where we are,” said Algeria’s Khelil. “There will be lots of volatility because of the uncertainty that’s tied to the economy, and we’re going to see ups and downs. But I think we’re going to stay in that level until early next year, and then by early next year, we should see prices rising.”