Opec eyes fragile economic recovery
May 27, 2009
Vienna - Opec ministers in Vienna for a meeting this week look almost certain to keep the oil cartel's production steady, with the "green shoots" of world economic recovery too fresh to justify a cut, ministers and analysts say.
The price of crude has risen sharply to about $60 a barrel in recent weeks, which has relieved the pressure on Opec members even though the level is still below the $75 they would like to see.
Forcing prices higher, however, would dampen demand when major economies are critically weak.
The most influential member of the group, Saudi Arabia, was clear about its intentions on Tuesday when Oil Minister Ali al-Nuaimi told journalists here that Opec would "stay the course."
A host of ministers are to arrive in Vienna on Wednesday ahead of a formal output meeting on Thursday when members are expected to maintain the status quo, a production target of 24.84 million barrels per day.
The Organisation of Petroleum Exporting Countries, which pumps 40 percent of world oil, cut its production target three times late last year to stabilise prices which tumbled from record highs above $147 per barrel in July 2008 to $32.40 in December.
The group seeks to influence prices by setting itself an output quota, with members given individual production targets which are reviewed at regular meetings.
Nuaimi said he was worried about high oil stock levels in industrialised countries -- a sign that demand is weak -- but the feeling among analysts is that Opec will prefer to hold their fire and let an economic recovery take root.
King Abdullah of Saudi Arabia was optimistic about the future of the oil market in an interview with Kuwaiti daily Assiyassa published Tuesday.
"We are currently seeing a fast recovery for the global economy and are seeing indications of a higher demand for oil," he added.
On Sunday, Algerian Energy Minister Chakib Khelil also forecast that Opec ministers would maintain current production quotas.
"We need the world economy to pick up again and I think maintaining the status quo goes in that direction," he said on the margins of a meeting of G8 energy ministers in Rome.
"Maintaining the status quo, given that prices are rising, is a wise solution. Why... break the cycle of growth that we are already seeing on the horizon?" he added, noting that a consensus was building among Opec members.
Playing its traditional role as a price hawk, Iran has called for a cut, but its demands, like those of fellow hawk Venezuela, are often overlooked by the Gulf members who account for the bulk of Opec's output.
"The market is oversupplied... As an expert, if you find that the market is oversupplied, the solution is very clear," Iran's Opec governor Mohammad Ali Khatibi told Dow Jones Newswires late on Sunday, referring to the need for a cut.
Most analysts expect the rise in prices in recent weeks to around $60 to satisfy Opec members, which have seen their revenues from oil exports plummet since last July's record highs.
Furthermore, as noted by the energy watchdog the International Energy Agency, some Opec members produced more than their quotas in April, so if the cartel wanted to cut production it could clamp down on this over-supply.
A further cut could also expose the fragility of Opec's discipline which has thus-far impressed analysts.
"We don't believe that anyone could seriously believe that Opec will cut production targets again at its meeting on Thursday, especially as compliance dipped in April to 77 percent from 82 percent in March," said analyst Peter Hutton at NCB Oils.
One consultancy prepared to believe in a cut is JBC Energy, which sees the risk of sharp falls in oil prices in the months ahead.
"It is our view that Opec needs to look beyond the current oil price and heed the weak prompt market fundamentals," JBC said in a research note.
"If the group does this they will see the need to remove an additional one million barrels per day from the market for a six-month period, which would allow them to bring supply and demand into equilibrium."
It should be noted that Opec ministers have a long history of confounding analysts and making fools of forecasters even when their decision has been widely flagged in advance. - AFP
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