Opec calls for commitment to production quotas

VIENNA – Opec ministers have called for an end to overproduction by some members as they sought to slice nearly a million barrels per day from world supply and boost prices – but without further shocking the anaemic global economy.

Their comments suggested that yesterday’s oil ministers’ meeting of the Organisation of the Petroleum Exporting Countries might opt for a call on all members to honour production quotas, instead of deciding to slash output outright.
Most members of the 12-nation organisation had been clear in favouring reduced output in the days preceding Sunday’s full meeting of the Organisation of the Petroleum Exporting Countries. Still they had left open whether they want to lower output quotas – or if they favour a solution less likely to hurt the struggling global economy by simply seeking to end overproduction by some nations above levels allotted to them.
Algerian energy and mines minister Chakib Khelil called for both on Saturday. ‘Comply and cut,’ he told reporters asking what he preferred.
But recognition that direct cuts could backfire appeared to prevail on the eve of the meeting.
While slashing production could raise prices in the short term, it could also lead to further depressing demand, as struggling economies cut back on pricey crude they cannot afford. Pushing for full quota compliance instead would be less harmful.
Opec cuts agreed on since September were meant to take a daily 4,2 million barrels off the market. But the 11 members under production quotas are still overshooting their joint daily target level of just under 25 million barrels by about 800 000 barrels a day.
Opec regularly overproduces. But even if the group cannot fully meet its target, more quota discipline would lead to reduced world supply at a time of depressed demand, even if Opec succeeds in taking no more than a few hundred thousand barrels more off the market. That could be enough to raise prices moderately, without sending shock waves through shaky world economies.
Opec powerhouse Saudi Arabia, which has pumped less oil than its quota to compensate for overproduction by Iran and others, was thought to favour the option of higher quota adherence.
‘We like to see compliance as high as possible,’ Saudi oil minister Ali Naimi told reporters. ‘It’s over 80 per cent now. It can be better.’
Abdullah bin Hamad Al Attiyah, Qatar’s minister of energy and industry, was more direct. Asked whether he favoured slashing output, he said: ‘We should first ensure full compliance.’
A relatively strong comeback in prices may help the Saudis and other Gulf producers make their case. Prices have rallied from below US$35 a barrel last month, with a barrel of benchmark crude fetching over US$46 a barrel on the New York Mercantile Exchange Friday. Earlier in the session, prices peaked at US$48,14.
There is no question the ministers want to bolster prices. While off its low of around US$30 just a few weeks ago, a barrel of crude still fetches less than a third of what it did over the summer. That is well below the break-even point for producing nations, which could affect not only their national budgets, but oil production as well.
‘We want better prices,’ said Nigerian oil minister Rilwanu Lukman. Asked if his country would be happy with US$70 a barrel, he replied: ‘That would be nice.’
But as the world grapples with the worst recession in decades, Opec ministers realise they have to tread lightly.
‘It doesn’t make sense that they should announce a further cut with the world in recession. They still have 800 000 barrels (of overproduction) to go,’ said London-based analyst John Hall.
Two reports published Friday supported arguments that oil supply was ahead of demand.
At the same time, they served as an indirect warning: drive up prices more and face even less demand in a sputtering global economy that already has cut back on consumption.
– Nampa-AP