Mar 27 2009
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Opec opts for moderate prices for now
ruled out a fourth output cut at its meeting early this month because it does not want to trigger a sharp rise in prices that would further damage global oil demand, a key energy research centre said yesterday.
Instead, the world's oil superpower Saudi Arabia and other key members of the 12-nation Organisation of Petroleum Exporting Countries stressed the need for compliance with recent decisions on output reduction to prevent a further slide crude prices, the London-based Centre for Global Energy Studies (CGES) said in its monthly market report, sent to Emirates Business.
CGES, run by former Saudi oil minister Sheikh Ahmed Zaki Al Yamani, also ruled out a full adherence by Opec to its three separate decisions since September to trim supplies by a total 4.2 million bpd on the grounds they could lead to a sharp rise in crude prices.
"Although Opec continues to insist that higher prices are required to guarantee investments in future oil supply capacity, it also recognised that the world economy is in the midst of the worst global economic recession in decades. For now, the Organisation appears to have accepted the need for a period of more moderate oil prices," the report said.
"While the decision not to agree further output cuts was clearly the right one under the circumstances, the same cannot be said of the call for full compliance with last December's agreement. The desirability of full compliance, even for Opec member-countries themselves, is far from clear.
"While Opec has no obligation, moral or otherwise, to help bail out the developed economies, it does have a clear self-interest in doing just that," the report added. CGES noted that while the growth in oil demand over recent years was concentrated in the developing countries of Asia, it was only made possible by their exports of manufactured goods to the 30 members of the Organisation of Economic Cooperation and Development (OECD).
Full compliance with the current agreement would remove a further 1.1 million barrels per day of oil from the world market, forcing a global stock draw of more than 1.5 million bpd this year, according to CGES estimates. "While this would normally lead to a healthy rise in oil prices, there are very real worries that, in the present economic climate, it would simply undermine the chances of recovery, raise the spectre of inflation and delay the upturn in oil demand that Opec members need more than anybody else," it said.
"Luckily for the global economy, and perhaps for Opec itself, full compliance may be impossible to achieve. There is little sign of further significant output cuts from those countries that have yet to meet their targets and history suggests that they will not act unless oil prices collapse again, which seems unlikely at present," the report added without naming those members.
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