OPEC expected to keep production targets steady

Oil ministers will likely shrug off pressure from price hawks Iran and Venezuela to reduce output.

May 26, 2009 10:21
2 minute read.


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A jump in oil prices to six-month highs despite anemic world demand is working against hard-line OPEC members advocating even costlier crude ahead of a meeting of the 12-nation organization - and in favor of those wanting to keep production levels steady. Formally, the meeting Thursday in Vienna could decide on a variety of options: cutting output levels, keeping them steady or raising them. But with prices high - and demand stubbornly low thanks to the worldwide recession - oil ministers will likely shrug off pressure from price hawks Iran and Venezuela to reduce output in an attempt to boost prices and opt to keep present levels. Simple figures appear to speak for keeping the status quo. A barrel of crude now fetches more than $60 compared to levels near $30 just four months ago. And that spike has come despite continued anemic worldwide demand and gloomy future forecasts; OPEC's May estimate sees demand for its crude declining by over 2 million barrels a day this year. Instead of being powered by demand, oil prices have risen on the back of international stock markets. But stocks normally rise months ahead of actual growth in industrial production, reductions in unemployment rolls and other signs that a recession is over. And the US and other key economies are showing at the best only glimmers of hope instead of tangible improvement. Thus, any move by the Organization of the Petroleum Exporting Nations to scale back output levels in an effort to prop up prices could backfire - both in terms of prolonging the recession and thereby depressing demand and by deepening perceptions that OPEC is bent on enriching itself at the cost of the rest of the world. "The rationale behind increasing prices has been that prices have fallen low enough," trader and analyst Stephen Schork said Monday, suggesting that OPEC would have little choice but to keep the status quo later this week. "But all we have seen is supply increase further and demand falling further." Cuts agreed on since September were meant to take a daily 4.2 million barrels off the market. But the 11 members that are under production quotas are still overshooting their joint daily target level of just under 25 million barrels by more than 800,000 barrels a day. While 100 percent compliance with quotas is unlikely, even an additional 10% would take more than 400,000 barrels a day off markets, slicing into oversupply while reducing the price shock that an outright cut in existing quotas would cause. Thursday's meeting is thus likely to opt for nothing more drastic than renewing calls on members to slash overproduction and warning that OPEC is ready to call for an emergency meeting should prices slide suddenly.

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