OPEC likely to keep output at present levels

AP News
Posted: Dec 13, 2011 9:34 AM
OPEC likely to keep output at present levels

OPEC ministers are expected to agree to a common position on how much oil to market when they meet Wednesday, despite their differences, in sharp contrast to their last meeting in June which broke up in acrimony.

Disputes pitting Iran and Venezuela against Saudi Arabia and its allies persist. Iran and Venezuela want Gulf nations to cut back on overproduction _ something the Saudis _ OPEC's oil powerhouse _ are unlikely to agree to.

But both sides want to avoid new public rifts. That means the 12-nation organization will likely either set a new target that matches current overproduction, or issue a statement saying present levels are meeting market demand.

For OPEC, reaching agreement is perhaps even more important than what is agreed on. In June oil ministers disagreed publicly on how much oil to sell, with Saudi Arabia labeling it the worst ever meeting. This time, they are keen to paper over the cracks and repair OPEC's tattered image.

Kuwait's oil minister Mohammed al-Busairi told the official state news agency KUNA Tuesday that the global oil market is balanced and that he hopes the meeting will "reach a consensus formula."

A joint stance is key for an organization that likes to see itself as the oil market's chief regulator _ and which wants to avoid a repeat of the June meeting. With Iran and its allies rejecting a Saudi push to increase output and make up for lost Libyan supply at that gathering, the result was a free for all.

Supported by other Gulf members, the Saudis, OPEC's petroleum powerhouse, upped their production. Others also ignored quotas. And OPEC was left looking foolish.

Coming into Wednesday's meeting, OPEC is exceeding its three-year old production ceiling by 11 percent, with the Saudis making up much of that overproduction. Their estimated 10 million barrels a day is a third of overall output _ and the most they've pumped since August 1981, according to the Energy Information Administration.

Over the past six months, the Saudis increased production by about 1.3 million barrels a day. They are the only OPEC nation with such spare capacity _ and their decision to up output and keep a lid on prices after the June meeting, convincingly demonstrated that they continue to set OPEC policy.

At least for now, however, the lesson that the Saudis rule on oil output appears to have been learned by Iran and Venezuela, like Tehran a vocal price hawk.

Iranian Oil Minister Rostam Quasemi said last week that supply and demand are in synch _ although he added that he sees prices over $100 a barrel as fair. And he said he will accept whatever an OPEC advisory panel recommends. Those experts favor the status quo _ daily production of around 30 million barrels.

Any decision Wednesday "will be decided by consensus," he told reporters Tuesday.

Venezuelan minister Rafael D. Ramirez remained pugnacious Tuesday, telling reporters Gulf countries "have to cut back."

At the same time, he suggested his country would follow Tehran's lead, saying, "we have a very good level of coordination with the Iranians."

Ehsan Ul-Haq, senior market consultant at KBC Energy Economics, said Iranian willingness to compromise reflects Tehran's recognition "that they cannot do anything if they continue to oppose what the Saudis would like to have."

The Saudis, in turn, are unlikely to press for any formal increase in output that would risk another abortive meeting.

In any case, they can up production unilaterally in case the world economy demands much more. But that is unlikely as long as the euro crisis continues to weigh on the global economy.

Oil prices hovered below $98 a barrel Tuesday reflecting such concerns. Benchmark crude has slumped from $103 last month amid growing investor worries that European leaders may be unable to get a grip on their debt crisis.

OPEC, in its monthly forecast issued Tuesday, said the world's expected appetite for crude would remain unchanged this year but predicted consumption next year would be down to a daily 88.9 million barrels _ 100,000 barrels less than in its previous estimate.

It said the adjustment reflects slowing growth in industrialized countries, "which is expected to have spillover effects for China and India, and hence impact oil consumption over the coming year."


Associated Press writers Adam Schreck in Dubai and Alex Kennedy in Singapore contributed.