|OPEC Decides Against Fourth Output Cut on Economy|
|March 15, 2009|
By Grant Smith and Maher Chmaytelli
OPEC agreed to maintain current production quotas, concerned that a fourth cut since September risked increasing energy costs during the worst global economy in six decades.
The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s crude oil, will aim to complete existing production cutbacks agreed to late last year and meet again on May 28 to review policy, Secretary-General Abdalla el-Badri said after yesterday’s meeting in Vienna.
OPEC members still need to trim about 800,000 barrels a day to comply with the record output reductions decided in December after oil slumped more than $100 a barrel from July’s record. Global inventories have started to fall, indicating the policy is working. A new cut threatened a price increase that could harm the economy, Saudi Arabian Oil Minister Ali al-Naimi said.
“They’ve decided that, in the medium term, the danger to the global economy was greater than the danger of high inventories,” David Kirsch, an analyst with Washington-based consultant PFC Energy, said in an interview in Vienna. “A rollover should be sufficient to draw down inventories to acceptable levels by the third quarter.”
The collapse in oil prices has cut costs for consumers and business, one of the few bright spots in a bleak economic picture. Finance chiefs from the 20 biggest developed and emerging economies pledged a “sustained effort” to end the recession after a weekend meeting. The International Monetary Fund predicts the first global economic contraction in six decades.
Higher prices could further erode global oil demand, already forecast to fall by 1 million barrels a day in 2009. Oil futures fell after the OPEC meeting, dropping as much as $2.40 a barrel, or 5.2 percent, to $43.85 a barrel in New York. Prior to OPEC’s decision, oil prices had gained 3.7 percent this year.
“A lot of people would have been surprised by OPEC’s lack of action,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “It’s quite bearish.”
Algerian Oil Minister Chakib Khelil, who had argued for another cutback prior to the meeting, said afterwards that all OPEC members will make an “extra effort” to comply with the existing cutbacks. Oil prices will not rise a lot after yesterday’s decision, he added.
The crude oil production target for 11 OPEC members bound by quotas is 24.85 million barrels a day, while actual output from those countries averaged 25.715 million barrels a day in February, according to an OPEC report published on March 13 that cited data from secondary sources including analysts. That means the group had completed 79 percent of its promised reduction.
“Now it is time to fully adhere to the cuts we agreed upon,” Qatari Oil Minister Abdullah Bin Hamad Al-Attiyah said after the meeting.
Saudi Arabia, which pumps more than twice as much oil as Iran, OPEC’s second-largest producer, is the only member to cut more output than agreed last year. Iran and Nigeria have made good on only about half of their promised reductions, according to figures OPEC released March 13. The group agreed to three cutbacks late last year totaling 4.2 million barrels a day.
The 12-nation producer group doesn’t expect a rapid recovery in prices to $75 a barrel, the level that several ministers and Saudi King Abdullah have previously said is appropriate to encourage investment in the industry.
“The situation creates a lot of uncertainties, but we believe that by the end of the year we will find a balanced oil price,” OPEC President Jose Maria Botelho de Vasconcelos, who is also Angola’s oil minister, said at a press conference after the meeting. “We need to adhere and then in May we can look if other measures can be taken.”
OPEC’s el-Badri criticized Russia and other non-OPEC producers for failing to restrict their own output to support oil prices.
“I have not seen any action as far as production reduction is concerned,” he said in an interview. “I don’t see anything form Norway, I don’t see anything from Mexico. It’s not a free ride or a free lunch.”
The group already faces a 61 percent plunge in net oil revenue this year amid declining production and prices, according to the U.S. Energy Department, which estimates OPEC will earn $383 billion in 2009 from crude exports. Global oil demand is set to decline for a second consecutive year, the first back-to-back drop since 1983.
The Paris-based International Energy Agency last week cut its 2009 forecast for oil demand for a seventh month, and reduced supply estimates, as the global economic slump saps consumption as well as investment in new fields. Both the IEA and OPEC see demand slumping more than 1 million barrels a day this year, to about 84.5 million barrels a day.
“By meeting again in May, they can adjust targets should economic conditions deteriorate,” PFC’s Kirsch said. “The steps they’ve already taken are starting to have some effect, we’ve started to see crude inventories in the U.S. come down.”
OPEC’s May 28 meeting and an already scheduled Sept. 9 summit will both take place in Vienna, where the group’s secretariat is based. El-Badri’s term of office was extended for another three years from 2010.
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