30 May 2009
Organization of Petroleum Exporting Countries (OPEC) opted on Thursday to keep its output unchanged at a meeting in Vienna, with hopes of recovering demand for crude and higher prices persuading members to maintain current production levels.
The 12-member oil exporter group believes the market is oversupplied, as shown by current high stock levels, but members seem satisfied with prices after a recent rally that has taken crude back above $60 a barrel.
OPEC members would stay the course with their current output target of 24.84 million barrels a day, Saudi Arabia Oil Minister Ali al-Nuaimi told AP.
The group could have cut production to remove some of the excess oil in the world system. Demand is so weak that millions of barrels of crude are being kept at sea in tankers that have become floating storage facilities.
Signs of Pick Up
Instead, the group predicted that increasing demand will mop up some of the glut. Saudi Arabia's Nuaimi spoke of signs of a pick up in demand in Asia and the United States.
Some ministers have also openly expressed their concern that a cut in production by OPEC now would drive prices higher still, burdening the world economy with expensive energy at a time of deep recession.
"We think they (prices) are low but they will improve. But we should not make it more difficult for the world economy," said the head of Libya's National Oil Company, Shukri Ghanem.
Crude prices spiked to a six-month high above $63 on Wednesday before falling back slightly on Thursday but they remain below the $75 that OPEC members say they want in the longer term.
The Organization of Petroleum Exporting Countries, which pumps 40 percent of world oil, cut its production target three times late last year to stabilize prices that tumbled from record highs above $147 in July 2008 to $32.40 in December.
The group seeks to influence prices by setting itself an output quota, with members given individual production targets that are reviewed at regular meetings.
"There is an expectation that the worst of the economic downturn is behind us," David Kirsch, an analyst at US consultancy PFC Energy, told AFP. "Even a weak recovery or a stabilization of current oil demand should result in a drawdown of inventories to normal levels at the end of the year," he added.
Analyst John Hall, who runs his own consultancy, said OPEC could not decide on an output cut because many members are already producing more than their current quota.
Sit Back
OPEC oil ministers appear ready to sit back and let a recovering world economy lift crude prices instead of trying to bolster them by cutting back production.
There was little drama ahead of the meeting, with most oil ministers saying they expected the status quo to be kept unchanged. Even Oil Minister Golamhossein Nozari of Iran said on Wednesday he expected OPEC to keep output at present levels.
This sentiment appeared due to optimism that the US--the world's largest oil consumer--is gradually emerging from a severe recession. Oil investors took heart from Tuesday's report from private research group The Conference Board that showed US consumer confidence in May soared to its highest level since last September.
Instead of being powered by demand, analysts say oil prices have risen because of international stock markets. But although stocks normally rise 6-9 months before the actual economy starts growing again, a series of economic reports have recently suggested that the recession is bottoming out, if not yet ending.
About 74 percent of the forecasters in a survey by the National Association for Business Economics in the US expect the recession, which started in December 2007, to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year and the remaining 7 percent believe the recession will end in the first quarter of 2010.
OPEC's president indicated a decision already had been reached even ahead of Thursday's formal meeting. Asked if he expected only brief consultations on Thursday, Jose Maria Botelho de Vasconcelos, who is also Angola's oil minister, replied "yes."
Cuts agreed on since September were meant to take a daily 4.2 million barrels off the market. But the 11 members under production quotas are still overshooting their joint daily target level of just under 25 million barrels by more than 800,000 barrels a day.
While 100 percent compliance with quotas is unlikely, even an additional 10 percent compliance would take more than 400,000 barrels a day off markets, slicing into oversupply while reducing the price shock that an outright cut in existing quotas would cause.
Organization of Petroleum Exporting Countries (OPEC) opted on Thursday to keep its output unchanged at a meeting in Vienna, with hopes of recovering demand for crude and higher prices persuading members to maintain current production levels.
The 12-member oil exporter group believes the market is oversupplied, as shown by current high stock levels, but members seem satisfied with prices after a recent rally that has taken crude back above $60 a barrel.
OPEC members would stay the course with their current output target of 24.84 million barrels a day, Saudi Arabia Oil Minister Ali al-Nuaimi told AP.
The group could have cut production to remove some of the excess oil in the world system. Demand is so weak that millions of barrels of crude are being kept at sea in tankers that have become floating storage facilities.
Signs of Pick Up
Instead, the group predicted that increasing demand will mop up some of the glut. Saudi Arabia's Nuaimi spoke of signs of a pick up in demand in Asia and the United States.
Some ministers have also openly expressed their concern that a cut in production by OPEC now would drive prices higher still, burdening the world economy with expensive energy at a time of deep recession.
"We think they (prices) are low but they will improve. But we should not make it more difficult for the world economy," said the head of Libya's National Oil Company, Shukri Ghanem.
Crude prices spiked to a six-month high above $63 on Wednesday before falling back slightly on Thursday but they remain below the $75 that OPEC members say they want in the longer term.
The Organization of Petroleum Exporting Countries, which pumps 40 percent of world oil, cut its production target three times late last year to stabilize prices that tumbled from record highs above $147 in July 2008 to $32.40 in December.
The group seeks to influence prices by setting itself an output quota, with members given individual production targets that are reviewed at regular meetings.
"There is an expectation that the worst of the economic downturn is behind us," David Kirsch, an analyst at US consultancy PFC Energy, told AFP. "Even a weak recovery or a stabilization of current oil demand should result in a drawdown of inventories to normal levels at the end of the year," he added.
Analyst John Hall, who runs his own consultancy, said OPEC could not decide on an output cut because many members are already producing more than their current quota.
Sit Back
OPEC oil ministers appear ready to sit back and let a recovering world economy lift crude prices instead of trying to bolster them by cutting back production.
There was little drama ahead of the meeting, with most oil ministers saying they expected the status quo to be kept unchanged. Even Oil Minister Golamhossein Nozari of Iran said on Wednesday he expected OPEC to keep output at present levels.
This sentiment appeared due to optimism that the US--the world's largest oil consumer--is gradually emerging from a severe recession. Oil investors took heart from Tuesday's report from private research group The Conference Board that showed US consumer confidence in May soared to its highest level since last September.
Instead of being powered by demand, analysts say oil prices have risen because of international stock markets. But although stocks normally rise 6-9 months before the actual economy starts growing again, a series of economic reports have recently suggested that the recession is bottoming out, if not yet ending.
About 74 percent of the forecasters in a survey by the National Association for Business Economics in the US expect the recession, which started in December 2007, to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year and the remaining 7 percent believe the recession will end in the first quarter of 2010.
OPEC's president indicated a decision already had been reached even ahead of Thursday's formal meeting. Asked if he expected only brief consultations on Thursday, Jose Maria Botelho de Vasconcelos, who is also Angola's oil minister, replied "yes."
Cuts agreed on since September were meant to take a daily 4.2 million barrels off the market. But the 11 members under production quotas are still overshooting their joint daily target level of just under 25 million barrels by more than 800,000 barrels a day.
While 100 percent compliance with quotas is unlikely, even an additional 10 percent compliance would take more than 400,000 barrels a day off markets, slicing into oversupply while reducing the price shock that an outright cut in existing quotas would cause.
© Iran Daily 2009
