OPEC to stop short of oil output cuts

ham

With oil rising this week to $ 62 a barrel from $ 33 in December, most analysts expect OPEC to stop short of a new cut in output after agreeing to remove 4.2m b/d —5 percent of world demand—to counter the recession.

That is just as well, because OPEC “malcontents” Venezuela, Angola and Iran are questioning individual supply targets or output figures. Analysts say the issue could complicate any change in overall supply and undermine efforts to present a unified front to the wider world.

“Rumblings about quota allocations and production are getting louder,” said Antoine Halff, analyst at Newedge in New York.

“The need to manage those issues will likely make it difficult if not impossible for producers to speak in one voice on any change in production targets.”

Besides those rumblings, some estimates of production, including OPEC’s own monthly report, say members pumped more in April for the first time since last year, suggesting waning compliance.

OPEC does not provide official production figures and did not give individual targets under its supply cut agreement.

It uses secondary sources to monitor its output, a legacy of past disputes about how much oil members said they were pumping. Venezuela, in the midst of a cash crunch that could worsen if its credit and debt ratings deteriorate further, has taken issue with the secondary sources’ estimates of its production.

It has published figures certified by an outside company aimed at rebutting estimates that Venezuela pumps around 2.1m b/d, arguing its supply is much higher. The country has long argued that its output recovered from a strike at state oil firm PDVSA in late 2002 to 2003, a view questioned by other analysts and forecasters.

Caracas, OPEC insiders say, could suggest in Vienna that other OPEC countries certify their output, an idea that has irritated Saudi Arabia, OPEC’s top producer and, according to many estimates, its most compliant.

“One of the surprises at the meeting could be Venezuela’s new position on independent certification of its production, particularly if Venezuela raises the suggestion that other member countries should do the same,” said David Kirsch, analyst at PFC Energy.

“That would not be met with euphoria to say the least.”

An OPEC delegate was doubtful any effort would work, given the failure of a previous attempt.

Angola, one of OPEC’s newest recruits, says its target is 1.656m b/d, not the 1.52m b/d included in an OPEC internal document in December which has been widely taken to be its output limit.

While pumping more than either of those, the country is also the holder of OPEC’s rotating presidency and speaking about the need to improve compliance—an irony that will not be lost on the rest of the group.

Iran, the second-largest OPEC producer behind Saudi Arabia, has also questioned the baseline for its output cuts.

When such problems have come up for OPEC in the past, the organisation’s response has often been to defer the issue and, when it has to, resolve it by finding a middle way.

For example, Algeria early this decade asked for a larger OPEC target. It waited for years, but continued to pump as much as it could because rising world demand and prices allowed OPEC to ignore the issue.

Leave a Reply

Your email address will not be published. Required fields are marked *