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By Grant Smith
The Organization of Petroleum Exporting Countries will uphold its target of 24.845 million barrels a day when it meets in Vienna on March 17, according to 42 of 44 analysts surveyed this week. Shokri Ghanem, chairman of Libya’s National Oil Corp. said on March 9 that “no new decision is expected,” while Saudi Arabian Oil Minister Ali Al-Naimi said in January that oil between $70 and $80 is “almost perfect.”
The producer group is unlikely to reduce quotas that it set at the end of 2008 as long as members are pumping more than the agreed limits, nor raise them without stronger signs that demand will keep improving, the analysts said. Oil inventories have risen again this year, after being whittled down in 2009 by OPEC’s record production cuts.
“OPEC is pretty satisfied with how stable the price is,” said Amy Myers Jaffe, an energy analyst at the Baker Institute and associate director of the Rice Energy Program in Houston. “They’re where they want to be. Compliance with quotas is not as good as it could be so I’d expect some jaw-boning about that.”
The group announced the biggest production cuts in its 50- year history at the end of 2008 as demand crumbled because of the global recession. Those cutbacks, led by Saudi Arabia, helped oil prices rise 78 percent last year. Oil futures made further gains this year, exceeding $80 a barrel in New York, driven by a recovery in the broader economy, even as OPEC’s oil output rose for a sixth consecutive month in February.
Compliance Flags
Compliance with its record 4.2 million barrel-a-day supply cut had dwindled to 53 percent last month as the 11 members bound by quotas boosted production to 26.811 million barrels a day, according to a March 10 monthly report by OPEC. Iraq is the only member exempt from the quota system.
The group has kept its output ceiling unchanged at four meetings since the cuts were announced in December 2008.
OPEC expects global crude consumption to grow by 1.1 percent this year, which is less optimistic than today’s estimate by the International Energy Agency for a 1.8 percent expansion.
“Significant concerns around international debt markets, high unemployment in the U.S. and soft near-term economic fundamentals will prevent OPEC members from raising production quota levels,” said Jason Schenker, president of energy consultants Prestige Economics LLC in Austin, Texas.
Second-Quarter Dip
Demand typically slides in the second quarter as refiners lower imports while conducting seasonal maintenance during the switch from making winter fuels, like heating oil, to gasoline for the summer driving season.
Of the two analysts who predicted that OPEC would not roll- over the existing quota, one said the organization will cut its target and the other said it will be raised in line with actual production. They declined to be identified by name. The Bloomberg survey comprised 44 analysts and oil traders from Asia, Europe and the U.S.
OPEC typically holds a meeting in September and another in December. Many ministers are expected to attend the International Energy Forum in Cancun at the end of this month, where they may hold informal talks.
“We think you would need to see prices go to $65 before you spur concern within the cartel,” said Harry Tchilinguirian, head of commodity derivatives research at BNP Paribas SA in London. “It is easier to turn a blind eye rather than go through negotiations over new quota allocations.” Schenker and Tchilinguirian both expect no change in quotas next week.
OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The March 17 gathering will be the first to be held in OPEC’s new Vienna offices after it relocated from another part of the city in November.
--With assistance from Christian Schmollinger, Kaipin Yee in Singapore, Margot Habiby in Dallas and Mark Shenk in New York. Editors: Stephen Voss, Clyde Russell
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
