Saudi Arabia along with the United Arab Emirates, Kuwait and Qatar — happy with the current prices — will seek to reduce overproduction by urging the group to comply with output quotas agreed in December, they said.
“Their first priority will be to maintain output levels. Every producer is happy at the current oil price. They never expected prices to rebound to this high level so fast,” Kuwaiti oil analyst Kamel Al-Harami told AFP.
Oil prices, which peaked above $ 147 in July last year before tumbling to $ 32 in December, have doubled since the start of 2009 and touched the $ 75 mark last week for the first time in 10 months.
Kuwait’s Oil Minister Sheikh Ahmad Abdullah Al-Sabah said in August that OPEC should maintain its output levels because prices were satisfactory. He also hoped oil prices would remain between $ 70 and $ 80 a barrel.
The Organization of the Petroleum Exporting Countries, which pumps 40 percent of global oil supplies, is due to meet in Vienna Wednesday, when ministers will review its overall production ceiling.
The target level was reconfirmed in May at 24.85 million barrels a day excluding Iraq’s output, currently around 2.5 million bpd.
The Vienna meeting is not expected to raise production quotas because that would undermine prices nor to cut allocations since this would seriously hamper global economic recovery, the analysts said.
“It seems there will be little scope for OPEC to raise production without putting pressure on prices, at least during the first half of 2010,” Saudi SAMBA banking group said in its August economic report.
Harami said that if OPEC slashes output “it will seriously harm the world economic recovery” which will subsequently put pressure on oil prices.
“Markets appear torn between weak fundamentals and fluctuating sentiment on the prospects for a global recovery. Further volatility is likely,” SAMBA said.
Following the slump in oil prices late last year and early in 2009, most economic forecasts predicted Gulf nations’ budgets for this year would go into the red for the first time since 2002.
The subsequent recovery on petroleum markets means budgets are headed for yet another surplus if oil prices stay just above $ 60 a barrel.
The other main challenge to OPEC is compliance with production cuts. According to latest available data this has slipped to around 70 percent from well over 80 percent a few months ago.
The big four Gulf oil nations pump about half of OPEC’s current production of just under 29 million bpd including Iraq and are believed to be complying with their production quotas, Kuwaiti economist Hajjaj Bukhdur said.
“I think Gulf states would like to see production compliance from all members rather than resorting to a new output cut. This will help reduce overproduction and maintain prices at $ 70,” he told AFP.
He estimated that worldwide overproduction is around 2.5 million bpd from OPEC and non-OPEC producers.
SAMBA said that recent estimates suggest that compliance with the 4.2 million bpd reduction agreed in December slipped to just 72 percent in June, reflecting overproduction mainly from Iran, Angola and Venezuela.
Harami said that economic recovery, US currency exchange rate, speculations and fluctuations in major world stock markets are immensely affecting oil prices.
Saudi Jadwa Investment predicted that OPEC will not be able to raise output before next year. “2010 will see a recovery in demand and OPEC will raise supply in response,” said Jadwa, projecting Saudi production to average 8.4 million bpd next year, up from 8.1 million bpd in 2009.
“Oil prices will depend on the world economy. I believe OPEC production and oil prices will remain at the current level through the second quarter next year, barring exceptional developments,” Harami said.
