VIENNA Mar 16, 2007 (From the Wall Street Journal via Dow Jones Newswires)
Behind OPEC's decision to leave oil output unchanged lies a new calculation on the part of the cartel: that it has prevailed in its multiyear struggle to regain some control over turbulent petroleum markets.
In a quick meeting at their headquarters here, ministers of the Organization of Petroleum Exporting Countries yesterday decided to stick with their current output target of 25.8 million barrels a day for the 10 members in its quota system. The cartel's actual output is estimated at 26.8 million barrels, though that still marks a one-million-barrel decline from September, before the cartel began cutting output. The world consumes roughly 85 million barrels a day.
OPEC is keeping supplies in check, even though prices remain at relatively lofty levels, because it wants to ensure a low level of inventories in customers' tanks and thus buttress its pricing power. That stance has raised concern in importing countries that prices may pick up again this summer, as they did last year when crude hit a nominal record of $78 a barrel. Yesterday, crude for April delivery finished at $57.55 a barrel in New York, down 61 cents, or 1%.
OPEC officials contend their strategy poses little risk to the world economy because the producers group has regained the power to prevent oil prices both from skyrocketing and from collapsing. That theory will be tested in coming months, as seasonal demand for oil dips early in the second quarter but resumes rising in subsequent months with the onset of the summer driving season.
Starting in 2004, the cartel had trouble capping what seemed to be a runaway oil-price boom, in large part because it lacked enough spare capacity to pump extra crude, prompting traders to bid up prices. Toward the end of 2004, OPEC's spare capacity had dwindled to fewer than one million barrels, leaving markets perilously stretched. Then, last autumn, after an extended period of pumping flat-out, prices began tanking when supplies of oil in commercial inventories were soaring.
OPEC officials yesterday said the group could easily pump more oil if needed between now and the next ministerial meeting, scheduled for Sept. 11 in Vienna.
Oil prices are now close to what many in OPEC say is an unstated target -- keeping a barrel of U.S. benchmark oil near $60 a barrel or more. Indeed, U.S. benchmark crude prices have averaged a shade above $59 a barrel since OPEC decided to start reducing its output in October.
"We are happy with the [OPEC] basket between $55 and $60 a barrel," said Shokri Ghanem, the head of Libya's delegation. That translates into a price of $60 or more a barrel for Western nations, because higher-quality U.S. and North Sea benchmark oil types typically fetch several dollars a barrel more than the basket of OPEC crude oils.
Mr. Ghanem acknowledged in an interview that prices could surge to levels that OPEC is uncomfortable with. "I wouldn't be surprised if [the price of oil] goes up to $80 a barrel this year" if something goes wrong, Mr. Ghanem said. Mr. Ghanem said he and others in OPEC begin to fret about negative repercussions when oil prices rise too high. "Beyond $65 or $70 a barrel, we are worried," he said.
Copyright (c) 2007 Dow Jones & Company, Inc.
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