OPEC output edged up in October to 28.825mn b/d from 28.710mn b/d in September, the latest MEES figures show. But despite fraying at the edges, the group’s quota discipline remains impressive, given the 10-month duration of their current cut and the temptation to take advantage of rising prices. OPEC Basket crude prices have been above $60/B since June and have topped the $75/B mark every day since 19 October, but production from the 11 members which participate in output deals is still some 1.4mn b/d lower than in December, when prices averaged $38.6/B. 

Attention is now focused firmly on the 22 December meeting in Angola, which will decide output policy for the first two quarters of next year. OPEC faces some difficult decisions. Essentially, market fundamentals remain weak despite high oil prices. Restrained output has eaten into the massive overhang of crude stocks seen earlier in the year, but these are still well above the five-year average and distillate inventories continue to be a concern. Including November, prices have risen for all but two of the last 12 months, but downside risks are substantial. “It really isn’t justified. We could see prices really slide, especially if we have a warm winter,” warns one analyst. The problem for OPEC is that any further rise in prices could threaten the recovery in the global economy that is fuelling oil’s current buoyancy.

Spare capacity – the vast majority of the group’s current 5mn b/d idle capacity is being shouldered by Saudi Arabia – is emerging as a more significant factor. Rising production in Angola and more critically in Nigeria, should its peace deal with rebels in the oil producing Niger Delta hold, could mean they push hard for an increase in their quota, either as individuals, or as part of an OPEC-wide output ceiling rise. Earlier this year Angola requested a quota exemption, MEES understands (MEES, 4 May). Given the stakes involved, it is hardly surprising that comments by OPEC Secretary General 'Abd Allah al-Badri on 22 October sparked a series of pre-meeting warning shots. “If these prices will continue, if we see the stocks go back to normal levels – the five-year average – if we see there is real economic growth, I am sure our member countries will take a decision to increase the production,” Mr Badri told Reuters . Nigerian Oil Minister and OPEC veteran, Rilwanu Lukman tells MEES global oil demand “is getting better,” but dismisses suggestions that Nigeria could secure itself a higher quota unilaterally. “Everyone has special circumstances,” he says. “But if the market holds and demand increases then we will need to do something to stop prices going through the roof,” Dr Lukman adds.

OPEC hawks Iran and Venezuela have come out publicly against any rise. “If the market needs more oil, never, never has OPEC refused to provide it,” Iran’s OPEC Governor Mohammad Khatibi, tells MEES. “But to increase production just to bring down prices, where is the logic?” he asks. “According to the projections of the IEA, OPEC, the EIA…everybody knows and there is consensus that demand for OPEC crude cannot exceed 29mn b/d – maximum, maximum – in the first and second quarters,” Mr Khatibi argues. “I believe…I feel, although I am not sure, that there is outside pressure to increase production.” Speaking to reporters on 3 November, Venezuelan oil minister Rafael Ramirez argued for “a position of caution.” He told Reuters : “We do not share the position of increasing output. We still notice a lot of instability in the oil market. There are many speculative factors. There are many factors linked to the devaluation of the dollar. There are many perception factors that markets have about the real recovery of the economy, especially in the United States.”

OPEC Crude Oil Production (MEES Estimates – ‘000 B/D)

* Revised.

† Includes 50% share of Neutral Zone output.

** OPEC 12 since January 2008, prior to that OPEC 10, OPEC 11 from October 2008.

Note: OPEC published quotas after the 11 September 2007 meeting, but they were subsequently withdrawn.  

OPEC faces a formidable set of challenges next year: West African output is rising, and good output performance is expected from non-OPEC, while demand is only projected to start properly recovering late in 2010. At that time, the first tranches of Iraq’s mega-capacity boost should be finding their way to the market (see page 1).

Iranian crude exports have fallen 380,000 b/d since July, according to data obtained by MEES. October’s 2.08mn b/d is the lowest level for Iranian exports since May 2008. A week-long outage on Iraqi northern exports, caused by a pipeline bombing at the end of October, brought down Iraq’s overall figures, despite a 40,000 b/d improvement in southern loading rates.

© Copyright MEES 2009.