Paris, 9 September 2007 OPEC ministers are to begin arriving in the Austrian capital today for a meeting at the oil cartel’s headquarters later in the week, with the 12-member club under pressure to raise output.
Analysts, previously convinced the group would make no change to its output level, are now split over whether it will concede that increased production is needed to dampen crude prices.
Last Thursday, oil prices in New York tested their record level of $78.77 per barrel, reached on 1 August, while in London a barrel of Brent was trading at about $75.
Rich countries are clamouring for more supply ahead of peak winter demand period in the northern hemisphere, with high oil prices an added risk for the world economy in addition to financial market turbulence and a US housing crisis.
“The OPEC meeting is now upon us, having loomed ever larger over recent months as a key event for the evolution of market prices this year and into next,” said a London-based analyst at Barclays Capital, Paul Horsnell.
He warned that “complete ministerial inaction would most likely mean not only new all-time highs being set, but highs well into the 80 dollars and perhaps beyond.”
Pierre Terzian, director of Petrostrategies magazine in Paris, said that “until a few days ago we thought that nothing was going to happen, but now there are some discussions inside OPEC.
“We’ve had some changes: prices have increased a lot, the stocks are down, and the discussion (about a possible output increase) has been reactivated,” he said.
Representatives from Indonesia, the United Arab Emirates, Kuwait, Libya and Qatar are expected to arrive in Vienna on Sunday, with the remaining members plus officials from Russia and Egypt anticipated on Monday.
Under usual OPEC practice, ministers will hold a series of bilateral talks in their luxury hotels in Vienna before meeting as a group on Tuesday to make a formal decision on output.
A number of influential members insisted last week that the market was adequately supplied with crude and that recent price gains were beyond OPEC’s control.
Iran’s oil minister, Gholam Hossein Nozari, said last Wednesday there was “sufficient oil on the market.”
His Qatari counterpart, Abdallah al-Attiyah, was more explicit at a gas conference in Doha last week.
“There will be no increase in production as supply and demand are in balance and the market is not suffering from any shortages,” he told reporters.
Nonetheless, the Saudi Arabia-led club is seen as facing a dilemma: it seeks high oil prices to maximise its income, but it wants to avoid a global economic slowdown caused by expensive crude.
The downside risks for the global economy are elevated at the moment, with the impact of a crisis in the US housing market and recent turmoil on financial markets still unknown.
Some economists have argued that a fall in oil prices induced by an increase in output by OPEC would boost the world economy and help it to absorb the drag caused by US housing defaults and tightening credit conditions.
Horshell at Barclays Capital said that given recent crude price rises “it was no longer a credible option for ministers to simply intone that the market is well-supplied and walk away.”
He said recent developments had “shifted the odds towards some flexibility on output,” most likely in the form of a promise of delayed output increases.
Other oil market analysts believe OPEC members are likely to be mindful of when they increased production in 1997 just as the Asian financial crisis was unfolding.
Fears of a recession and reduced demand sent oil prices into a tailspin and they crashed to 10 dollars in 1999.
OPEC “will do nothing” at their meeting in Vienna, according to Leo Drollas, chief economist for Britain-based Centre for Global Energy Studies.
The cartel, which expanded to 12 countries in January when African producer Angola joined, produces about a third of global crude supplies, a total of 30.5 million barrels per day.
As well as discussing its production policy, the group is also set to assess the reintegration of South American producer Ecuador, which left OPEC in 1992 because of a production quota dispute.
Ecuadoran President Rafael Correa has expressed a desire for the country and its 500,000 bpd of production to rejoin OPEC, but an expected membership application is not expected on Tuesday.
A spokesman for the Ecuadoran mines and oil ministry told AFP that a membership bid was still under study.