OPEC seen keeping current output ceiling
OPEC seen keeping current output ceiling
Dow Jones Manama, Bahrain
The Organization of Petroleum Exporting Countries (OPEC) would most likely decide to maintain its current production ceiling of 26 million barrels a day when it next meets on Wednesday in Vienna, the weekly Middle East Economic Survey (MEES) reports in its Monday edition.
Such a decision would give OPEC oil ministers room to monitor critical global oil stock levels as the northern hemisphere economies move out of the summer seasonal demand patterns and into pre-winter stock-building, the report said.
MEES said the price surge to near US$50 a barrel for nearby crude futures in August wasn't supported by fundamentals but was more a reaction to a pattern of sabotage against oil installations in Iraq, repeated news on limited spare capacity with OPEC and concerns about Russian production.
OPEC continued to overproduce its quota in the last few months in an effort to cap high oil prices, but now has limited room for maneuver as production is near capacity, MEES said.
"Ministers are faced with a limited set of options when they meet for their regular biannual ministerial meeting on Sep. 15 in Vienna," it added.
A cut in production quotas can be easily ruled out with West Texas Intermediate crude still above $40 a barrel, while any sustained decline in prices would likely first be tackled by a cut in excess production over and above quota levels, MEES said.
It said an increase in quotas in an attempt to further pressure prices lower would yield little benefit, especially since this would leave at least two countries, Venezuela and Indonesia, producing below quota and could re-ignite what some view as an untimely return to the debate about individual quota realignment.
However, "with prices having backed off around $7/bbl since the record highs of August, the pressure on ministers to make a new gesture on supply at the Vienna meeting has also eased," it said.
Meanwhile, MEES expects OPEC ministers won't endorse any change in the group's target price band of $22-$28/bbl at Wednesday's meeting because there is very little appetite among major producers to alter the band at this stage.
MEES said current price volatility and the limited visibility on what sort of range oil prices will ultimately settle within would make it difficult for the ministers to alter the current range.
"What's the use of changing the price band if you are unable to sustain it in the future," MEES quoted Algerian Oil Minister Chakib Khelil as saying.
Khelil said any change in the price band would need to reflect real structural change in the market.
MEES noted that an OPEC committee is studying long-term strategy, including discussion of the target price band.