VIENNA, March 17, (Agencies): OPEC ministers agreed not to change oil output targets they are already exceeding, anticipating that demand will pick up later in the year to mop up extra barrels.
But with economic recovery still fragile as powerhouse China considers curbs on credit, members discussed on Wednesday their adherence to production levels set in December 2008 to keep supply at 24.84 million barrels per day (bpd).
OPEC Secretary-General Abdullah al-Badri said the producers would next meet on Oct. 14 in Vienna, pushing back slightly from the usual September slot.
“Good demand, reliable supply, beautiful prices — we are very happy,” Saudi Arabian Oil Minister Ali al-Naimi said just before entering the meeting.
Benchmark crude futures traded at over $82 per barrel — in the area that OPEC’s biggest exporter considers appealing to both consumers and producers alike, despite overproduction by OPEC.
A nascent recovery in the global economy in the last year and rising prices have encouraged revenue-hungry OPEC members to pump more oil and in February they were making just 53 percent of promised cuts of 4.2 million bpd.
“Everything is relative — if there was no demand there would be no leakage,” said Naimi.
Saudi Arabia, OPEC’s biggest producer, is pumping around 8.1 million bpd — more than twice its nearest competitor in the group, Iran, but closer than many to its target level.
The kingdom has plenty of spare capacity which makes it the most flexible member of the group to meet consumption changes.
Naimi said he expected world oil demand in the second half of this year to grow by “about a million barrels” per day, adding he thought growth would be mainly from Asia.
“The implied situation is that we can go to zero compliance and then we’ll have Saudi Arabia as a swing producer,” said Olivier Jakob at Petromatrix.
The International Monetary Fund (IMF) expects China’s economy to expand 10 percent this year. while OECD head Angel Gurria is forecasting global growth of 4 to 4.5 percent this year because “China and India are pulling very hard.”
There are concerns, however, that China might curb credit in an effort to restrain its inflation, which now looks set to be 3.7 percent in 2010, the World Bank said on Wednesday, up from a previous estimate of 2.0 percent.
“While there has been improvement in the oil market outlook in recent months, there is still a long way to go before we can feel at ease with the situation,” OPEC President Germanico Pinto said in a speech before the meeting started.
“The issue of exit strategies from stimulus packages of a year ago and the right timing of adjustment is becoming a key factor in the recovery of prices,” he added.
“OPEC is responding to growth in the same way central banks are, in some way. They don’t want to move until a nascent expansion turns into a more solid expansion, they don’t want to raise production too soon,” said Jason Schenker, president of Prestige Economics.
Ministers have said there should be no need for any extra OPEC meetings this year and the October appointment is safely after the traditionally weak second quarter when prices could fall, putting pressure on members pumping excess.
“The problem is, we are heading into the second quarter, when demand normally falls and inventory builds up. So the current level of OPEC supply may cause oversupply,” said Carsten Fritsch, analyst at Commerzbank.
“There is a risk that oil prices will go lower,” he added.
OPEC will also meet in Quito, capital of the president Ecuador, in the second or third week of December.
The decision not to alter its output ceiling — which the cartel has now held unchanged for 15 months — had been seen as a done deal.
In recent days, OPEC’s 12 member countries have pointed to high oil inventories, low demand and recovering crude prices for reasons not to move.
The organisation’s president, Ecuadoran Oil Minister Germanico Pinto, said Wednesday that while oil prices had “held up” since the cartel’s last meeting in December, “the strength of the global economic recovery in 2010 remains uncertain and uneven.”
He added in the meeting’s opening address: “The main challenges today concern market stability at a time of much uncertainty in the world economy.
“While there has been an improvement in the oil market outlook in recent months, there is still a long way to go before we can feel at ease with the situation.
“Developments in the world economy, which remains balanced on a knife-edge of uncertainty, will continue to have a direct impact on the outlook in the coming months,” said Pinto.
OPEC has had an official output level, excluding production by Iraq, of 24.84 million barrels a day since January 2009 after removing a massive 4.2 million barrels from the target level in a move aimed at halting a slide in prices.
Oil prices, which tumbled from historic highs of more than 147 dollars in July 2008 to about 32 dollars in December in response to the global recession, have since clawed back ground on economic recovery hopes.
New York crude was trading above 82 dollars ahead of OPEC’s formal announcement.
Below is an extract dealing with the world economic outlook and the oil market from OPEC President Germanico Pinto’s speech at the start of the group’s meeting on Wednesday:
“The main challenges today concern market stability at a time of much uncertainty in the world economy. While there has been an improvement in the oil market outlook in recent months, there is still a long way to go before we can feel at ease with the situation. Developments in the world economy, which remains balanced on a knife-edge of uncertainty, will continue to have a direct impact on the outlook in the coming months.
“The strength of the global economic recovery in 2010 remains uncertain and uneven. The firmer growth is expected to occur in the non-OECD areas, but even this may be affected by government measures to address overheating emerging economies. However, the recovery is far from self-sustaining in the major OECD countries and fears of double-dip recession remain a threat. The issue of exit strategies from the stimulus packages of a year ago and the right timing of adjustment is becoming a key factor in the recovery process.
“Oil prices have held up since we last met in Angola in December. The decision we took one year earlier, at the height of the financial and economic crisis in late-2008, has been widely credited with helping restore order and stability to the oil market. Prices have remained within a range of around US $70-80 a barrel for our Reference Basket for five months.