Sources: OPEC Axes Oil Production Monitoring Committee
VIENNA - OPEC has decided to axe a key committee that monitored its members' compliance with oil production targets and made recommendations on output policy, people familiar with the matter told The Wall Street Journal Wednesday.
The Vienna-based secretariat of the Organization of the Petroleum Exporting Countries will now be responsible for monitoring members' production levels, instead of the Ministerial Monitoring Sub-Committee, or MMSC, the people said.
The decision comes despite expectations that pressure will grow on OPEC to avoid an oil market oversupply resulting from a boom in North American crude production and rising output from some of its own members, notably Iraq.
In the past, OPEC has used production quotas to prevent an oversupply that could weaken oil prices, notably in 2008 when it cut output sharply amid the global financial crisis.
The committee was composed of three ministers from OPEC member countries and the group's official head, the Secretary General, according to OPEC's website. The committee did not have the power to force members to comply with their quotas, but its views have often influenced subsequent decisions on oil production taken by OPEC ministers.
The decision to axe the committee comes at a time when OPEC member countries no longer have individual production quotas. Instead, since December 2011, OPEC has had a collective production ceiling of 30 million barrels a day, although the group's output has consistently remained above that level.
"OPEC doesn't see a need for the committee anymore. We have no quotas that members need to adhere to and everyone seems to be happy with the ceiling system," said one OPEC delegate who did not wish to be named.
"We don't really need the MMSC anymore. We have another economic committee and the OPEC monthly [oil market] reports, which the MMSC relied on for its recommendations," said another delegate from one of the Persian Gulf members. "We often had the MMSC just reviewing data without making official recommendations to OPEC, so cancelling it should not affect decisions."
The MMSC was set up more than two decades ago in order to improve compliance with production quotas as OPEC grappled with a steep fall in oil prices.
Early in 1993, the price of international oil benchmark Brent had fallen to a three-year-low of $16.50 a barrel after some Persian Gulf oil producers maintained elevated production levels originally intended to offset output losses related to the first Gulf war, when Iraq invaded Kuwait.
The end of the committee comes as OPEC faces forecasts that it could have to take some production offline to avoid oversupplying the market.
By 2020, Iraq's oil output is on track to more than double to 6.1 million barrels a day, according to data from the International Energy Agency. At the same time, demand for OPEC's oil is expected to diminish as production from the U.S. and Canada increases by a fifth to 11.9 million barrels a day by 2018, compared with this year, the IEA said.
From just over 30 million barrels a day last year, demand for OPEC crude is expected to fall to 29.2 million barrels a day by 2015, the IEA said. But OPEC's production capacity will rise from 35 million barrels a day last year to 36.4 million barrels a day by 2015, it said.
The implication of this is, in order to prevent an oversupply, OPEC will have to withhold an additional 2.3 million barrels a day of oil from the market by 2015.
That's because the spare capacity OPEC withheld from the market totaled 4.9 million barrels a day in 2012, and will rise to 7.2 million barrels a day by 2015, the IEA said.
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