VIENNA (Dow Jones Newswires), Oct. 14, 2010
The Organization of Petroleum Exporting Countries decided Thursday to again keep its production policy unchanged, although the widely-expected decision came flagged with concern about the uncertainty over the health of economic recovery and the weak U.S. dollar that is undercutting the purchasing power of many OPEC states.
The group's 12 ministers, meeting for the first time since March, decided to keep their production quotas at the same level they have been since December 2008. The move follows similar decisions by OPEC in 2009 and earlier this year to keep the quota system unchanged.
Crude for November delivery recently was up six cents at $83.07 a barrel on the New York Mercantile Exchange. The producer group will meet next in Quito, Ecuador, on Dec. 11. OPEC issued a statement in support of that country's President, Rafael Correa, who has faced a recent police uprising.
OPEC's widely anticipated move reflected most members' relative contentment with oil prices. OPEC, whose crude accounts for four out of every ten barrels burned globally daily, has been in a rather comfortable position for many months, benefiting from rising oil prices while producing a lot more crude than its output quotas technically permit.
Mike Wittner, head of global oil market research at Societe Generale in London, sees little in the offing to challenge today's relatively straightforward consensus within the cartel--other than a significant derailment to the economic recovery. OPEC would likely act aggressively to cut "if there was "significant price weakness below $70 a barrel," he said.
"OPEC will be happy to be a taker of higher prices as long as the recovery on track," Wittner said.
The International Energy Agency earlier this week projected that global oil demand would rise by a relatively modest 1% in 2011 amid tepid economic growth. The IEA, the energy watchdog of developed economies, said it expects benign market fundamentals could persist well into 2011," it said in its monthly report.
Some OPEC states are hankering for even higher oil prices in the months ahead.
"I think $100 is a perfect price for next year," Shokri Ghanem, the head of the Libyan National Oil Co., told journalists here at the group's headquarters.
But that sentiment jarred with OPEC's most important member, Saudi Arabia. The kingdom, the world's biggest crude exporter, said it still prefers an oil price between $70 and $80, a level widely seen among many oil-producing and consuming nations as adequate enough to support oil drilling investments without financially hammering consumers.
Saudi Oil Minister Ali Naimi said the kingdom was "very happy with how things are in the market" and downplayed calls from some hawkish ministers--under pressure at home from fragile economies--for higher prices to compensate for a weaker U.S. dollar against the euro and other currencies.
"Everybody has their own opinion. We [in the kingdom] are happy with the way the market is," Naimi said.
Naimi's comments carry weight because Saudi Arabia sits on roughly 4.5 million barrels a day of spare oil pumping capacity that can be tapped to keep oil inventory--the criteria OPEC watches closely to influence prices--at healthy levels and, thus, to put a lid on runaway prices.
Naimi also characterized global oil demand as "very healthy."
The weaker U.S. dollar is undermining the purchasing power of many OPEC states, which earn most of their revenue in dollars, the currency used to price most oil transactions. OPEC states import a lot of non-U.S. goods, especially from Europe, that get pricier as the dollar sheds value.
The dollar, although having lost about 20 cents in value against the euro in recent months to around $1.39, is still just over 10% stronger against the euro compared to 2008. The U.S. currency has been driven down in value over concerns about the U.S. economic recovery and by financial investors who, for months, have found yield opportunity selling dollars and buying crude.
Besides a worsening economy, the other issue that has been sees as a threat to today's OPEC consensus is the re-emergence of Iraq as a bigger player in international petroleum. Iraq has said it wants to produce 12 million barrels a day within six years, a goal that most experts believe is unrealistic.
This week's meeting suggested once again that any challenge Iraq poses to OPEC's quota is more of a long-term nature. Iraq Oil Minister Hussein al-Shahristani said Iraqi output would rise by 200,000-300,000 barrels a day from today's 2.5 million barrels.
Shahristani also said OPEC won't take up Iraq's production quota in 2011. A founding member of OPEC, Iraq hasn't been required to adhere to production quotas since the Iraq-Iran War in the 1980s.
Copyright (c) 2010 Dow Jones & Company, Inc.
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