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OPEC Shrugs and Holds Output Steady

Reuters
Wednesday, 5 Mar 2008 | 8:32 AM ET

OPEC ministers on Wednesday agreed to keep oil output steady and said record high prices

had been driven by factors that were beyond their control.

U.S. crude hit a record of $103.95 a barrel on Monday and was trading above $100 on Wednesday. Brent was also trading higher.

Washington has said even a token supply increase from the Organization of the Petroleum Exporting Countries would help to tame prices and limit any impact on a fragile world economy.

But OPEC ministers have repeatedly said the oil market has been driven by a weak dollar, speculation and political strife, and not by a lack of crude.

After less than two hours of talks, OPEC delegates told Reuters the group had reached agreement to keep supplies steady.

The ministerial meeting continued discussing other matters after the decision had been reached.

Nigerian Minister of State for Oil Odein Ajumogobia said before the meeting started he believed output should be kept steady, although he said oil above $100 was uncomfortable and above $80 a barrel was high.

"The OPEC official position has been anything above $80 is on the high side," he told reporters.

Behind the Scene Changes

Wednesday's no-change decision could still allow for quiet shifts in OPEC production. Top exporter Saudi Arabia has consistently pledged to keep the market well-supplied with oil.

Saudi Arabian Oil Minister Ali al-Naimi said the kingdom had been pumping 9.2 million barrels per day (bpd) "day in, day out," which is roughly 300,000 bpd above its formal OPEC output target.

Washington said on Tuesday a modest output increase of 300,000 bpd to 500,000 bpd could calm prices and help to limit any economic damage.

"I think it's a mistake to have your biggest customer's economy to slow down ... as a result of high energy prices," U.S. President George W. Bush said on Tuesday.

OPEC last decided to raise its production in September 2007 and that decision did not halt the oil price rally, OPEC President Chakib Khelil noted.

Together with other ministers, he said crude stock levels could build during the second quarter when consumption typically tapers off and any seasonal decline could be exaggerated by the impact of economic slowdown.

Some analysts have said an output increase could lower prices because it would allow stocks to build further, but others said speculators would spur prices higher.

Independent oil strategist Peter Gignoux said there were still "enormous flows of money" looking for a home and falling interest rates and sliding equities markets made commodities a good option.

"People want to be involved in raw materials in one form or another and the vehicle for most of them is the oil futures market," he said.

The exporter group's 13 members, who pump more than a third of the world's oil, could have an opportunity to reassess the market at producer-consumer talks in Rome on April 20-22.

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