VIENNA – OPEC appeared ready to focus on its old problem of member compliance with production limits at its meeting in Vienna, as oil ministers mostly said they were happy with oil prices – a clear suggestion they wouldn’t cut output.
‘Everything is in good shape,’ said Saudi Oil Minister Ali Naimi, whose country is OPEC’s top producer and widely seen as the group’s kingpin. Crude’s current price ‘is good for everybody: consumers and producers,’ he told reporters in Vienna as OPEC ministers began arriving ahead of the meeting today.
Oil ministers from the 12-member Organization of Petroleum Exporting Countries face vastly different circumstances than they did late last year, when they announced a record 4.2 million barrel per day production cut from September 2008 levels.
In their favor are crude prices of nearly $70 per barrel, roughly double their level at the start of the year. In addition, the global economic meltdown that had destroyed crude demand and deprived the oil producing bloc of its key export revenue source is showing signs of abating.
But the group also faces some stiff challenges.
Quota compliance, which had been the focus of much of the group’s efforts since it announced in December a record 4.2 million barrel per day output cut from September 2008 levels, is eroding – down to about 70 percent, according to analysts.
The group is finding little in the way of cooperation from Russia, the top non-OPEC producer. Then, there is the issue of money, with OPEC members hungry for vital crude revenues that could come from higher prices – but leery of jolting a world economy still struggling to rebound from its worst recession in decades. There are also political challenges.
Analyst John Hall of the London-based John Hall Associates said that given President Barack Obama’s efforts to push forward the Mideast peace process, Saudi Arabia ‘would not want to anger the Americans’ by appearing to back a new round of output cuts at present.
In an interview with Kuwait’s official KUNA news agency, that country’s oil minister, Sheik Ahmed Al Abullah Al Sabah echoed Naimi’s satisfaction with current prices. But Al Sabah stressed that the consensus within the group was to enforce compliance while keeping current production quotas unchanged.
The focus is pivotal for a group where some members have a long history of cheating on output targets.
So far this year, the producer bloc that accounts for roughly 35 percent of the world’s oil supply has left output unchanged as prices have continued to climb.
‘In principle, they always want to have higher prices – but taking into account the weak economic situation, they’re content,’ said Johannes Benigni, chief analyst at Vienna’s JBC Energy.
The bigger issue for OPEC is credibility. In the past, the group has announced cuts, only to ignore them.
That may have not been as problematic when demand for crude was robust, but the global recession has made sure that OPEC cannot count on finding ready buyers, at least in the short-run.
OPEC ‘cannot say we’re going to cut because no one will believe them,’ said analyst Hall. ‘Credibility matters,’ said Hall, adding that the call must come from OPEC’s current president, Jose Botelho de Vasconcelos, who is also Angola’s oil minister.
But Botelho de Vasconcelos ‘has not wanted to impose such cuts on his own country,’ said Hall.
Angola is one of the several members not adhering to quotas, which for the group as a whole are just under 25 million barrels per day.
OPEC, however, is producing roughly 1 million barrels per day above its target, meaning that any cut – or at least any significant cut – would likely carry little sway.
Additionally, OPEC is buoyed by what group members see as signs of a global economic recovery and are unlikely to try to undermine that rebound.
‘The economy seems to be doing OK,’ Algerian Oil Minister Chakib Khelil said, echoing other ministers. ‘Things look all right. Prices are holding. We hope the economy will do better.’
‘Of course, there are lots of uncertainties,’ Khelil said, adding that speculation continued to stoke volatility in the market.
With what OPEC has done up until now, ‘the application of measures we have taken in December, things will stabilize within the next six months. I don’t think stocks will continue rising, at least,’ he said. ‘All we need to do is comply with what we have decided to do.’
‘I think we are going to stay where we are, about where we are’ in terms of output targets.
Iranian delegation officials said OPEC members seemed disinclined to take any major action today, preferring instead to monitor crude prices and consider a possible cut in production quotas at the cartel’s next meeting.
‘There are some signs of improvement in the world economic situation and the dollar remains weak. But I think the current situation is getting better than before,’ Iran’s new oil minister, Masoud Mirkazemi said.
Angola’s Botelho de Vasconcelos suggested the bloc was watching prices closely and would intervene if crude swings too sharply one way or the other.
He said that while prices had improved, there was still ‘some volatility’ in the market.
