Cautious OPEC Holds Output Steady

AP Photo/Hasan Jamali
OPEC held its output quotas unchanged Tuesday, several ministers said as the producer group called for greater compliance from some members whose overproduction could undercut efforts to support prices amid a fragile global economic recovery.

The announcement by delegates representing several of the Organization of the Petroleum Exporting Countries' members reflected the producer group's cautious approach to balancing the market this year - at once dealing with weak demand and an oversupply while trying sustain the rebound in prices. In the end, the 12-member group decided that no action was the best action in a market where the pace of the world's recovery from its worst recession in decades remains uncertain.

"No change," said Shukri Ghanem, the head of Libya's National Oil Corp. and the North African nation's de facto oil minister, following Tuesday's brisk meeting in the Angolan capital, Luanda.

But Ghanem stressed that the group which supplies more than a third of the world's crude was unhappy with how some members have exceeded their production limits.

"Yes, we are talking about compliance. We are calling for member compliance," Ghanem said.

Ministers from several other OPEC nations, including Algeria, the United Arab Emirates and Angola, all confirmed that the group was not changing its quotas. The comments came hours before the formal announcement was to be made.

The decision to hold steady - or "rollover" production - targets was widely expected. The significance may be in that a group which has often been accused of ogling high prices without regard for the consequences has shown a strong measure of understanding for the prevailing economic worries.

After announcing a series of cuts by the end of last year aimed at curbing its supply by 4.2 million barrels per day, OPEC has resisted a similar urge in its three other meetings this year.

In part, that stems from the sharp recovery in crude prices, which are currently around $74 per barrel - or more than double their lows in the mid-$30s the past year.

"The OPEC people, they follow this stuff. ... They know demand is still weak," said analyst and trader Stephen Schork. "They'll take $75 a barrel. But given how precarious the situation is, they'd take $65 a barrel too if that would spur economic recovery in their clients."

Saudi Arabian Oil Minister Ali Naimi on Tuesday described current prices as "perfect, perfect," while Ecuador's oil minister, Germanico Alfredo Pinto Troya said current prices are "good for everybody, especially producers."

A pressing concern has been the pace of the world's economic recovery. OPEC has described 2009 as one of the worst years for oil demand. While it recently revised slightly revised up its forecast for 2010, it said that demand will be weak until the second half of the year.

A decision to change output may not only have undermined the economic recovery, but would also have likely undercut the bloc's credibility given that its compliance with its quotas is around 60 percent - a level that has fallen as oil prices rebounded.

"Compliance is a function of sovereign rights, and sovereign rights are sovereign rights," Naimi told reporters earlier Tuesday, adding that it was "nothing new" for some members to be overproducing.

Even so, "we'd like it to be 100 percent," said Naimi, whose country sits atop the world's largest proven reserves of crude.

That erosion in compliance puts OPEC again in the challenging position at a time when demand remains uncertain.

"If they can't get compliance back in the 60 and 70s (percent), oil is going to have a tough time rallying," said James Cordier, president of Tampa, Florida-based trading firm Liberty Trading Group. "When producing nations feel demand is good ... they comply with their quotas. When they're fearful of the future, they get oil out as fast as they can. And that's what's happening."