OPEP

OPEC holds output steady, sees economic recovery
VIENNA
Petroleumworld.com
May 29, 2009

The OPEC oil group opted Thursday to keep its output unchanged, with signs of economic recovery and higher crude prices persuading members to maintain their current production levels.
The 12-member group believes the market is oversupplied, as shown by current high stock levels, but the exporters are satisfied with prices after a recent rally that has taken crude back above 60 dollars a barrel.
"Our decision was to remain with the same level because we see things improving in the future," said Algerian Energy Minister Chakib Khelil, adding the group's production target would remain at 24.845 million barrels a day.
The group could have cut production to remove some of the excess oil in the world system. Demand is so weak that millions of barrels of crude are being kept at sea in tankers that have become floating storage facilities.
Instead, the group has bet that increasing demand will mop up some of this glut. Saudi Arabia's Oil Minister Ali al-Nuaimi spoke Wednesday of signs of a pick up in orders in Asia and the United States.
"The market is oversupplied, it's true, but ... we are seeing a light at the end of the tunnel. There is slowly, slowly a small recovery," said OPEC secretary general Abdalla Salem El-Badri after a regular meeting in Vienna.
The Organization of Petroleum Exporting Countries, which pumps 40 percent of world oil, cut its production target three times late last year to stabilise prices that tumbled from record highs above 147 dollars in July to 32.40 dollars in December.
The group seeks to influence prices by setting an output quota, with members given individual production targets that are reviewed at regular meetings.
Some ministers have expressed concern that a cut in production by OPEC at this meeting would have driven oil prices much higher, burdening the world economy with expensive energy at a time of deep recession.
"We should not make it more difficult for the world economy," said the head of Libya's National Oil Company, Shukri Ghanem before the meeting.
Khelil said that 60-dollar oil was "not a constraint," however, reflecting a more bullish view on the economic outlook compared to the mood when the organisation last met in March.
Recent economic indicators, most notably a recovery in US consumer confidence, have raised hopes the global economic downturn might be bottoming out, leading to gains in equity and commodity prices.
Crude prices spiked to a six-month high above 63 dollars on Wednesday before falling back slightly on Thursday. They remain below the 75 dollars that OPEC members say they want in the longer term.
OPEC members have complained since the end of last year that low oil prices prevent them from investing in projects that will supply the crude needed to fuel future expansion.
Some analysts predict another supply crunch in two to three years when oil prices could spike back to their record levels of nearly 150 dollars a barrel.
Most officials said here they expected prices to stay in their current range to the end of the year before increasing slightly in 2010 when the world economy is expected to recover.
Iran said Thursday it wanted a price of 80 dollars.
"There is an expectation that the worst of the economic downturn is behind us," David Kirsch, an analyst at US consultancy PFC Energy, told AFP.
"Even a weak recovery or a stabilisation of current oil demand should result in a drawdown of inventories to normal levels at the end of the year," he added.
Barclays Capital analysts commented: "We would agree with the view that the cuts OPEC has already made should be sufficient to reduce the inventory surplus significantly in the upcoming month."
Analyst John Hall, who runs his own consultancy, said OPEC could not decide on an output cut because many members are already producing more than their current quota.
He said quota-busting had crept up as the price increased over recent weeks.
"If you'd have said at the last meeting in March that they would have had 60 dollars a barrel, they would have jumped up and down with joy," he told AFP.
Story by Simon Morgan from AFP AFP 05/28/2009 15:28 Copyright© 2008 respective author or news agency. All rights reserved.