OPEC to hold fire over cuts to oil output quota

By Ben Perry LONDON, AFP

The Organization of Petroleum Exporting Countries, satisfied with the current price of crude oil, is on Thursday expected to maintain its oil output quota, analysts said. With the price of oil trading at around US$60 per barrel in London and New York, OPEC will keep its official production quota at 25.8 million barrels per day (bpd) at its ministerial meeting in Vienna, they predicted. “All the various OPEC ministers have been very consistently saying that they don’t see any need to do anything,” Calyon analyst Mike Wittner told AFP in London. “From an outsider’s view I would agree. I don’t see why they would take any action unless we got a five-dollar drop in the crude price between now and next Thursday.” With OPEC’s output announcement a forgone conclusion, according to experts, the surprise element lies with Angola, and whether the cartel’s newest member is handed a quota at its first official meeting. OPEC decided at its gathering in December to enlarge its membership for the first time in 30 years by admitting the southern African country that aims to produce 2.0 million barrels of oil per day by the end of 2007. Angola became the cartel’s 12th member on January 1, in a move aimed at increasing OPEC’s influence on the oil market. Prior to Angola joining, OPEC already produced more than a third of the world’s oil, led by output from Saudi Arabia, which is the world’s biggest crude producer. “There have been mixed messages over whether Angola is going to be included in quotas right off the bat,” Global Insight analyst Simon Wardell said. “I’d be surprised if they are, as it would raise questions over why Angola joined in the first place at this time, given the fact they’re in the midst of a big growth year and they could easily hold fire for another year. “Why would you want to shoot yourself in the foot by making yourself party to the quota system at a time when your output is growing quite significantly?” questioned the London-based analyst. Meanwhile ahead of Thursday’s meeting, Wardell said that according to most market estimates OPEC was overproducing by about 700,000 bpd. With this in mind, OPEC has still “got room left to cut back within existing quotas” before considering any fresh reductions, he added. Last October, the cartel agreed to cut its output by 1.2 million bpd, starting in November, in an attempt to lift prices. They followed up by agreeing another cut of 500,000 bpd that was due to have begun on February 1 this year. OPEC moved to slash production after crude prices had tumbled from record highs above US$78 per barrel in mid-2006 to about US$60 by the time of last October’s output decision. They went on to fall below US$50 in New York in mid-January, the lowest point for 19 months, owing to strengthening energy stockpiles in the United States. Wittner of Calyon said the level of oil prices was “by far the most important driver” behind OPEC’s decision-making over output. “The secondary factor for them would be the inventory situation. There’s been a big rebalancing (of energy stockpiles) compared to where we were at the end of September.”

Regarding Angola, Wittner said the country’s admission was all about prestige. “It’s the official seal of welcome to the top rank of oil producing countries,” he added. As far as OPEC is concerned, Wittner said, a 12th member gives it “more influence because they have that much bigger market share.” However he added: “When you think about it, Angola is actually fairly irrelevant — the fact that it’s now part of OPEC — because even when they do get a quota I think they’re going to be one of the countries that doesn’t observe its quota too strictly. “I would be surprised if they did get a quota at the meeting. When OPEC starts thinking about Angola’s quota it potentially raises the issue of ‘do they need to rejig everyone’s quotas?’ It possibly opens up a can of worms for OPEC.” Amid strong global demand for oil, especially from China, some OPEC members are guilty of overproducing despite their obligation to stick by the cartel’s quota. By producing more oil than is allowed, nations can earn many more petro-dollars.

OPEC comprises Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iraq, however, is not included in the official quota system because of the constant disruption caused to its output amid the country’s unrest.