OPEC Agrees to Keep Output Quotas Unchanged
VIENNA (Dow Jones), Mar. 17, 2010
The Organization of Petroleum Exporting Countries agreed Wednesday, as expected, to keep its output levels unchanged, OPEC delegates said.
After agreeing on the production quotas, however, the group continued talks on other matters in closed-door session, the delegates said.
Asked if the producer group had agreed to maintain its oil output, one delegate said, "Yes, they have agreed ... but still in talks over other issues."
Saudi Arabia Oil Minister Ali Naimi had said just ahead of the group's meeting that there was "no question" that OPEC would agree to leave its oil production quotas unchanged, adding that the kingdom will provide more oil to customers if there is "genuine" demand.
OPEC has calculated that emerging market consumers will absorb its 11 quota-bound members' oil output, which has risen in recent months, without torpedoing their goal of a healthy crude price. Oil prices have gained about 15% since OPEC's last meeting in December to trade around $82 a barrel Wednesday, slightly above the $70-$80 range many OPEC members prefer.
OPEC's decision to leave its output quotas unchanged will help to underpin oil prices as the summer driving season nears, an oil broker said.
"I think everyone knew there would be no surprises," the broker, who asked not to be named, said. "I believe it keeps the market buoyant with gasoline season on us soon, and above all these are good prices" for OPEC.
But as oil demand and capital markets improve, that could ratchet up pressure on OPEC this year to rein in members' excess production, said Jason Schenker, president and chief economist of Austin, Texas-based Prestige Economics.
"They're going to have to make some tough decisions this year," Schenker said. "They're trying to carefully weigh the reality of growth with the prospect of growth."
OPEC oil ministers said they would make the usual calls Wednesday for improved adherence with the group's 2008 production cut agreements.
The formal agreements remain in effect to keep oil traders' confidence that they haven't totally abandoned those pacts.
OPEC's recent statistics show compliance with those agreements now stands at about 53% of the 4.2 million barrels a day in previously agreed output cuts, which means OPEC is technically producing around 2 million barrels a day above its formal production ceiling of 24.845 million barrels a day for its 11 quota-bound members.
OPEC's 12th member, Iraq, isn't bound by the group's production agreements as it rebuilds its oil industry.
Members' recent ability to rake in more oil revenue by producing those excess barrels without much downside price risk made it almost certain that OPEC's quota-bound members wouldn't meddle with formal output levels.
As one senior OPEC delegate put it: "If it ain't broke, don't fix it. And it ain't broke."
The group, whose crude oil production satisfies about 40% of the world's daily oil consumption, has kept its formal production target unchanged since December 2008.
OPEC agreed to a series of output cuts in late 2008, after oil prices slumped from a $147-a-barrel peak and global demand dropped with the onset of economic recession.
(Nour Malas in Vienna and Lananh Nguyen in London contributed to this article.)
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