Thursday May 28, 12:12 PM
OPEC holds output steady
By Simon Morgan
VIENNA (AFP) - OPEC opted Thursday to keep its output unchanged at a meeting in Vienna, with signs of recovering demand for crude and higher prices persuading members to maintain current production levels.
The 12-member oil exporter group believes the market is oversupplied, as shown by current high stock levels, but members seem satisfied with prices after a recent rally that has taken crude back above 60 dollars a barrel.
"Our decision was to remain with the same level because we see things improving in the future," said Algerian Energy Minister Chakib Khelil, adding the group's production target would remain at 24.84 million barrels a day.
The group could have cut production to remove some of the excess oil in the world system. Demand is so weak that millions of barrels of crude are being kept at sea in tankers that have become floating storage facilities.
Instead, the group bet that increasing demand will mop up some of the glut. Saudi Arabia's Oil Minister Ali al-Nuaimi spoke Wednesday of signs of a pick up in orders in Asia and the United States.
"The prices are stabilising, they are even improving," Khelil said after the meeting. "We think the economy will improve in future, so the demand will be better."
Some ministers have also openly expressed their concern that a cut in production by OPEC now would drive prices higher still, burdening the world economy with expensive energy at a time of deep recession.
"We think (prices) are low but they will improve. But ... we should not make it more difficult for the world economy," said the head of Libya's National Oil Company, Shukri Ghanem before the meeting.
Crude prices spiked to a six-month high above 63 dollars on Wednesday before falling back slightly on Thursday but they remain below the 75 dollars that OPEC members say they want in the longer term.
The Organization of Petroleum Exporting Countries, which pumps 40 percent of world oil, cut its production target three times late last year to stabilise prices that tumbled from record highs above 147 dollars in July 2008 to 32.40 dollars in December.
The group seeks to influence prices by setting itself an output quota, with members given individual production targets that are reviewed at regular meetings.
"There is an expectation that the worst of the economic downturn is behind us," David Kirsch, an analyst at US consultancy PFC Energy, told AFP.
"Even a weak recovery or a stabilisation of current oil demand should result in a drawdown of inventories to normal levels at the end of the year," he added.
Analyst John Hall, who runs his own consultancy, said OPEC could not decide on an output cut because many members are already producing more than their current quota.
Some analysts expect the cartel to announce a clampdown on this quota-cheating during a press conference later Thursday when the official output decision will be unveiled.
Hall said OPEC members were very happy with the current price.
"If you'd have said at the last meeting in March that they would have had 60 dollars a barrel, they would have jumped up and down with joy," he told AFP.
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