OPEC was set to maintain its production ceiling as concern that global growth is shrinking outweighs calls for supply cuts to stem sliding crude prices.
The Organization of Petroleum Exporting Countries has agreed to maintain the limit, one delegate said from Vienna where ministers remained locked in a meeting for more than four hours. The delegate declined to be identified because he isn’t authorized to speak to the media. Ministers from Ecuador, Iran, Venezuela, Algeria, Angola and Nigeria back a rollover of the group’s 30 million barrel-a-day limit. Kuwait expects the ceiling to be unchanged.
Brent crude dropped 24 percent since March to $97.13 a barrel yesterday as OPEC’s biggest producer, Saudi Arabia, pumped near its highest in three decades. Europe has struggled to control a crisis that started in Greece at the end of 2009 and this month led to a bailout of banks in Spain, the region’s fourth-largest economy. The International Energy Agency cut its 2012 oil demand forecast yesterday by 100,000 barrels a day.
“In the present environment, raising the target would send out the wrong signal, as it would suggest that OPEC is not willing to step down the overproduction,” Eugen Weinberg, head of commodity research at Commerzbank AG in Frankfurt, said in a note yesterday. “This would risk a continued oversupply and a further drop in prices.”
‘Not so Positive’
Brent, a benchmark for more than half the world’s oil, rose as high as $128.40 a barrel on the London-based ICE Futures Europe exchange on March 1. The contract traded at $97.09 as of 6:42 local time.
While an increase of 500,000 to 1 million barrels a day would help Europe weather its economic slowdown, members such as Iran and Venezuela oppose such a move, two delegates who declined to be identified said yesterday.
Prospects for Europe’s economy are “not so positive” and will have an important role in determining oil market fundamentals in the short term, Saudi Arabian Oil Minister Ali al-Naimi said yesterday in Vienna.
“We’re still in a pretty fragile economic situation,” David Fyfe, head of the Paris-based IEA’s oil industry and markets division, said yesterday by phone. “We don’t necessarily view the market presently as oversupplied.”
OPEC is pumping 1.58 million barrels a day more than its target, according to a monthly report from the group’s secretariat that uses secondary sources such as analysts and news agencies for output estimates.
Saudi Arabia boosted production to 9.92 million barrels a day in May from 9.88 million barrels the previous month, according to OPEC estimates. The kingdom said it had cut production to 9.8 million from 10.1 million barrels in April.
Dangerous for Producers
The recent slump in crude is dangerous for producers and prices need to be higher than $100, according to Venezuela’s Oil Minister Rafael Ramirez.
“We are asking to reduce oil production,” Ramirez said in an interview in Vienna today. “There is over production and the economic situation is bad in the euro zone. The market has a lot of oil,” he said.
Iran, facing a European Union embargo on its oil exports, and Venezuela have been joined by Iraq, Angola, Libya and Ecuador in saying that global crude supplies are excessive.
“The drop in prices, we have objection,” Rostam Qasemi, Iran’s oil minister, said in Vienna. He met today with his Iraqi counterpart Abdul Kareem al-Luaibi to discuss the group’s production.
“Some may be tempted to see the market as oversupplied, and there have been calls by a number of producers for ‘over-production’ to be reined in,” the IEA said yesterday in its monthly report. “Memories are indeed short: crude prices remain very high in historical terms, and are acting as a drag on household and government budgets.”
Tightening sanctions on Iran and production halts outside of OPEC pose some risks to supply for the rest of the year, the IEA said. Outages from producers in the North Sea, Syria, Yemen and Sudan and South Sudan will reach 1.18 million barrels a day in the third quarter, the agency said.
OPEC will “most likely” keep its output limit when it meets, Kuwait’s Oil Minister Hani Abdulaziz Hussain said. “That looks to be the most likely outcome of the meeting: Maintaining the ceiling.”
Ministers began closed-session talks just before 3:30 p.m. local time in Vienna. A press conference by al-Luaibi, who holds the group’s rotating presidency, and Secretary-General Abdalla El-Badri was scheduled for 5 p.m.