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OPEC May Maintain Quota After Saudi Says Market ‘Well-Balanced’

OPEC Ministers May Leave Quotas Unchanged in Vienna
OPEC exceeded its group output target of 24.845 million barrels a day by 1.9 million barrels a day, or 7.7 percent, in September, according to Bloomberg estimates. Photographer: Fabrice Coffrini/AFP/Getty Images

OPEC may leave oil production quotas unchanged when it meets Oct. 14 in Vienna after Saudi Arabian Oil Minister Ali al-Naimi described the market as “very well-balanced” between the interests of consumers and producers.

“Everyone is happy with the market,” al-Naimi said late yesterday when asked, as he arrived at his hotel, whether the Organization of Petroleum Exporting Countries should boost supplies this year. “Consumer, producer, everyone is happy.”

Oil futures touched a five-month high of $84.43 a barrel last week in New York, well above the $70 to $80 price level that al-Naimi reiterated is “ideal.” Prices have settled above $80 for the past seven days, the longest stretch since August.

Saudi Arabia is OPEC’s largest producer, pumping 8.25 million barrels a day in September, based on Bloomberg News estimates. Fuel demand in the U.S., the world’s biggest oil consumer, dropped 6.4 percent to 18.5 million barrels a day, according to the U.S. Energy Department, the biggest weekly decline since 2004.

“I don’t think there will be any shift” in quotas by OPEC, Qatari Oil Minister Abdullah al-Attiyah said in an interview Oct. 10 after meeting in Kuwait with ministers from Saudi Arabia and other Persian Gulf nations. “Producers and consumers are happy” with current oil prices, he said.

Demand Growth

Growth in oil demand will be uneven next year, with the International Energy Agency forecasting a 4.3 percent increase in China and a 0.8 percent reduction in Europe’s five biggest countries. OPEC members, which supply 40 percent of the world’s oil, meet at the group’s headquarters in Vienna to discuss market conditions.

“We are comfortable with the whole market today,” Naimi said at the Grand Hotel in Vienna. “The situation in the market is very comfortable. The economic growth of the world has been remarkable in 2010.”

Crude for November delivery lost 45 cents, or 0.5 percent, to settle at $82.21 a barrel on the New York Mercantile Exchange yesterday. Prices increased 1.3 percent last week in the third consecutive weekly gain, the longest stretch since June.

“OPEC wants oil to be around the $80-$100 a barrel bracket, as to risk higher prices may damage the fragile recovery,” said Rebecca Seabury, an analyst at Inenco Group Ltd., a London-based energy consultant. “Although production levels are currently above quota levels, it is unlikely that quotas will be changed unless we see some very strong signs of growth in the economy.”

Economic Growth

While China’s gross domestic product will grow 8.9 percent in 2011, according to the median estimate in a Bloomberg News survey of 24 economists, the poll shows growth of 2 percent for Germany, Europe’s biggest oil consumer.

OPEC agreed to a record 4.2 million-barrel-a-day cut in production in late 2008 as global demand fell 0.6 percent, the first decline since 1983. Members are now adhering to about 53 percent of that cut, OPEC Secretary-General Abdalla El-Badri said on Sept. 14.

OPEC has raised production 5 percent from a five-year low in March 2009, and now exceeds its own target by 1.9 million barrels a day, about the same amount as Angola produces. Output from the 12 members was 29.1 million barrels a day in September, according to Bloomberg estimates.

OPEC’s Crude

Demand for OPEC’s crude will decline from 29.3 million barrels a day in the third quarter of this year, to 28.6 million in the first quarter of 2011, before recovering thereafter, according to IEA calculations, which take into account world consumption and non-OPEC supply. The Paris-based agency’s next monthly report is due on Oct. 13.

“We don’t want to rock the boat and do something that maybe will have a negative effect on the world economy,” OPEC’s El-Badri said in a Sept. 14 Bloomberg Television interview from Vienna.

West Texas Intermediate crude, the U.S. benchmark grade, will average $85 in 2011, according to the median of 23 analyst forecasts in a Bloomberg News survey this month. All of the respondents said OPEC will leave production targets unchanged when oil ministers meet this week.

OPEC may still seek a higher price for its oil given that the dollar is weakening because of speculation the Federal Reserve will sell bonds to revive economic growth, said JPMorgan Chase & Co. and Bank of America Merrill Lynch. Oil is traded internationally in dollars.

Currency Fluctuations

The Chinese yuan last week climbed to its strongest level against the dollar since 1993. The Brazilian real has rallied for eight straight weeks against the U.S. currency, a decline that the country’s finance minister, Guido Mantega, last month called a “currency war.”

For the past couple of years, Saudi Arabia and most other OPEC members have maintained that oil at $70 to $80 a barrel is a good compromise between producers and consumers. OPEC doesn’t have a formal, official price target.

“If we continue to see what the Brazilian finance minister described as a currency war, it is likely that OPEC will take notice and will demand a higher price for its oil,” Merrill’s head of global commodity research, Francisco Blanch, said in an Oct. 7 interview in London.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Ministers planned to arrive in the Austrian capital yesterday and today, and then hold informal discussions tomorrow before their policy meeting the next day.

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