OPEC Agrees to Keep Oil Output Steady
OPEC decided Thursday to stick to already agreed-on output levels while paying more attention to curbing overproduction -- a decision that could push prices higher by taking up to 700,000 barrels of crude a day off world markets.
OPEC members have generally expressed satisfaction with their oil fetching around $60 a barrel in recent weeks and their decision to stick with the status quo reflected their desire to keep prices around that level.
"The market is stable, the market is healthy," OPEC Secretary General Abdalla Salem El-Badri of Libya told reporters. "We don't need to touch it this time."
Shokri Ghanem, head of Libyan oil policy and chief executive of Libya's National Oil Co., agreed, saying: "There was no reason to cut production or to increase production because the market is balanced."
Still, output could fall even without newly mandated reductions if ministers implement compliance with cuts agreed on in the past four months.
In meetings in Qatar in October and Nigeria in December, OPEC agreed to take a combined 1.7 million barrels a day off global oil markets as they sought to shore up sagging oil prices and shrink burgeoning inventories.
But actual cuts have fallen short of that target by about 700,000 barrels a day, meaning that if the overhang is eliminated, shortfalls could develop -- tightening a market that is already relatively stretched.
Two reports released this week suggested that demand already was outpacing supply.
The International Energy Agency said that -- without Iraq and Angola, which are not bound by quotas -- daily OPEC oil production last month was 26.8 million barrels a day, with total OPEC output last month averaging 30.2 million barrels -- 400,000 barrels less than OPEC should produce to meet world demand.
In addition, an OPEC report issued Thursday raised estimated output requirements, saying the organization needed to produce 180,000 more barrels a day between April and June than it forecast last month.
For the year, the report said, OPEC will need to boost output by a daily 150,000 barrels to 30.4 million barrels a day. It put global oil demand at 85.5 million barrels a day _ up by about 100,000 barrels a day over its previous forecast.
OPEC's record of full compliance with output reductions is spotty, and it was unclear how much -- if any -- of the daily 700,000-barrel overproduction would be taken off the market.
Still even a partial cutback could drive up prices. Even without being fully implemented, the two cuts have led to prices rising from below $50 a barrel just a few months ago toward the present $60 a barrel levels.
They also have dented global oil inventories, raising the prospect of OPEC having to lift production at some point this year -- most likely to meet increased demand due to a jump in gasoline use during the summer driving season in the United States.
"If OPEC did comply more strictly with its past cuts it would have to increase production," said analyst John Hall, of John Hall Associates in London.
And while calling Thursday's decision "the right response to current market conditions," Barclays Capital analyst Kevin Norrish warned of signs "that the market has already been over-tightened relative to the normal seasonal profile, and there is enough inventory tightening not just to defend current prices but to push them higher."
Oil prices fell after OPEC's decision. Light, sweet crude for April delivery slipped 9 cents to $58.07 a barrel on the New York Mercantile Exchange, while April Brent crude dropped 38 cents to $60.68 a barrel on the ICE Futures exchange.
Qatar's oil minister, Abdullah bin Hamad Al Attiyah, said OPEC was generally satisfied with output levels.
"I think compliance has been very good and also the ministers have given complete assurance that there will be continued commitment," Al Attiyah said. He said for now, OPEC has agreed to meet again on Sept. 11 in Vienna and Dec. 5 in Abu Dhabi, in the United Arab Emirates.
Among those who reportedly backed keeping output steady -- though possibly ending overproduction above agreed levels -- was OPEC powerhouse Saudi Arabia, the organization's top producer.
In comments carried by the Saudi-owned Al Hayat newspaper, Oil Minister Ali Naimi said the "markets are comfortable, stocks are comfortable, so there is no need to change production," adding that the two recent cutbacks were "good and appropriate" decisions.
Present prices leave comfortable profit margins both for producers and the major oil companies. Assuming economies are healthy, they also are below the pain threshold that leads to less world consumption after nearly a decade of rising prices.
"We seek prices that are stable, sustainable and acceptable to producers and consumers alike," said Mohammed al-Hamli, the United Arab Emirates' oil minister and OPEC president.