OPEC ministers on Wednesday agreed to stop cheating on oil production quotas, a persistent problem that has helped push crude oil prices down by about 25% this year.
How OPEC might accomplish this remains unclear, and analysts had their doubts. But futures traders responded by pushing oil prices higher in New York and London.
OPEC, spurred by Persian Gulf heavyweights Saudi Arabia and Iran, called a special session late Wednesday to talk about widespread overproduction. It ended up agreeing in principle on much of the business set for the summer meeting, which was delayed by a day.
The oil ministers decided to roll over, as they have for some time, their official supply ceiling of 25.033 million barrels a day for another six months. Now, OPEC Secretary-General Rilwanu Lukman of Nigeria insisted, the group will abide by its agreement.
Lukman said, however, that the group has not come up with any new ways to ensure that the cheating stops.
OPEC has been producing about 2 million barrels a day above its supply ceiling, and Venezuela is believed to account for 800,000 barrels of the excess oil. Nigeria runs second with 400,000 barrels above its agreed limits.
“I think it is wishful thinking to think the countries overproducing will pull an about-face,” said Michael Rothman, a senior energy analyst at Merrill Lynch & Co., based in New York. Rothman called OPEC’s cheating “a deep-rooted and complex problem for the group” that won’t vanish.
Still, traders were bullish.
Light sweet crude oil to be delivered in August jumped 49 cents to $19.52 a barrel in late dealings on the New York Mercantile Exchange. North Sea Brent crude for August delivery was up 35 cents at $18.22 per barrel on London’s International Petroleum Exchange.
A Persian Gulf source, who spoke on condition of anonymity, said Wednesday’s talks among the ministers were frank, with the quota-busters more open than in the past about actual production.
Under pressure from the others, Venezuelan oil minister Erwin Arrieta acknowledged overproducing by 800,000 barrels per day and indicated he wanted to try to get output closer to the agreement, the source said.
But confession and reform are different matters, said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.
Lukman said OPEC’s current quotas would stay in effect for at least six more months.
During the spring, OPEC watched its average oil price plummet to around $17 per barrel from $23 per barrel late last year. Its target is $21.