OPEC keeps its oil output targets unchanged

AP News
Posted: Oct 14, 2010 1:54 PM
OPEC keeps its oil output targets unchanged

OPEC oil ministers on Thursday left production targets unchanged despite what they say is oversupply, signaling both satisfaction with crude prices in the $80s and determination to send a message of stability to energy-dependent nations emerging from recession.

A senior OPEC official also confirmed that the organization was studying a consultant's report that warns of possible substantial losses in earning power for members by 2050 as the world goes green and reduces dependence on fossil-based fuels.

The report was prepared for OPEC as part of its long-term strategy, approved Thursday. It says the gross domestic product of OPEC members could fall between 27 percent and 44 percent in 40 years as nations enact laws to counter climate change.

Asked about the report, first published by the Italian financial daily "Il Sole 24 Ore," Saudi prince Abdulaziz Bin Salman Bin Abdulaziz Al Saud, who chaired the group that drew up the strategy, confirmed that the forecast losses were "within that vicinity."

OPEC's 12 oil ministers were not expected to make any changes in production levels even before the closed meeting began. The ministers, said Saudi oil minister Ali Naimi, are "are happy with the market the way it is."

Naimi also said the meeting had agreed that Iran will hold the rotating OPEC presidency next year, with Iranian oil minister Masoud Mir-Kazemi taking over from his Ecuadorian counterpart on Jan. 1.

The decision is sure to rattle Western nations at odds with Tehran over its refusal to stop activities that could produce both nuclear fuel and atomic arms. Still, it is unlikely to change policies of OPEC, which is dominated by Saudi Arabia, the group's biggest producer and a U.S. ally.

Thursday's agreement extended the overall output target of the 11 OPEC countries under quotas of just under 25 million barrels of crude a day _ a figure set in December 2008.

Back then, OPEC announced the last of a series of cuts aimed at bringing its output down by 4.2 million barrels per day _ a move that helped engineer a rebound in crude prices, which had collapsed to the low $30s from a mid-2008 high of almost $150 per barrel.

But OPEC nations overproduce, meaning that those 11 nations actually put out about 27 million barrels a day _ about 2 million over the target they agreed to maintain Thursday. And with the inclusion of Iraq, which is not bound by quotas as it rebuilds, total daily output is around 29 million barrels.

OPEC Secretary General Abdalla El-Badri acknowledged that quota compliance _ now at "an average of 61 percent" _ was a problem, telling reporters: "We still need to work hard to improve that compliance."

But he suggested that _ as long as overproduction was not denting prices _ there was no need to push nations selling more than their allocated quote to curb their output.

"I think that what we are doing at this time is perfect," he said.

Jason Schenker, the head of Austin, Texas-based Prestige Economics, said the decision would do little to change oil market patterns.

"It's not going to have much of an impact right now, and I don't think a significant increase in compliance is likely," he said.

Ministers in the Organization of the Petroleum Exporting Countries, which produces about 40 percent of the world's crude, already suggested ahead of Thursday's meeting that they were comfortable with current prices, which have hovered around $75-$85 per barrel in recent months.

"Of course we would always like to see it higher," Iraqi oil minister Hussain al-Shahristani said Thursday. "But not too high _ that ... will hinder the world's economic growth."

While they are content with present prices, OPEC members are concerned about the weak dollar because they sell for dollars and lose every time the U.S. currency falls.

Crude's price, however, has been driven upward in recent days by investors fleeing the dollar into commodities, including oil. The higher cost roughly balances the currency's weakness, thereby weakening any rationale to drive prices higher by reducing production.

Benchmark crude was trading about $83 a barrel Thursday, pushed higher in part by the U.S. dollar's slide.

"The price at this time if things stay the same is comfortable for us," said El-Badri, the OPEC secretary general.

Schenker predicted that OPEC could soon ask more for its crude, saying "the weaker dollar is going to send prices higher."