OPEC Declines to Boost Production

The Organization of Petroleum Exporting Countries spurned appeals Sunday from industrial countries seeking relief from high oil prices and ruled out any further increases in crude production through the end of the year.

With heating-fuel stocks at record lows and cold weather expected to strike many parts of the United States and Europe this week, the decision by OPEC oil ministers appeared to dash hopes for a rapid decline in oil prices, which now hover between $32 and $33 a barrel.

Saudi Arabian Oil Minister Ali Nuaimi said that following four successive hikes in production this year, OPEC wanted to see how the market responds as cold weather arrives in the Northern Hemisphere. “It takes time to assess what has been done,” he told reporters. “There is no need to do anything now. We are just monitoring the situation and will make decisions when necessary.”

Many OPEC countries fear that the recent production increases might lead to an oversupply problem that could drive prices back down to $10 a barrel. Even though prices remain well above the group’s preferred range of $22 to $28 a barrel, there are growing worries about a price collapse after the winter.

“I believe the oil is already in the market,” Nuaimi said. “It took us 18 months to recover from the [last] price collapse. We’ve had less than a year of output increases. So let’s allow the market to absorb the oil.”

Several countries said that when OPEC ministers meet again Jan. 17, they are likely to shift their focus to production cuts to shore up prices once demand for heating oil starts to wane.

Iran and Algeria, regarded as the leading price hawks in the cartel, have already declared that they will push for a slash in output to prevent a downward price spiral next spring.

The mood of uncertainty that surrounded Sunday’s gathering reflects OPEC’s persistent troubles in calibrating global supply and demand. While the cartel controls 40% of the world’s oil production and 60% of all exports, it must cope with an important number of producing countries not subject to its decisions, including Russia, Mexico and Norway.

The latest production increase of 500,000 barrels a day, which was announced two weeks ago, appeared to have no impact.

With all OPEC members except Saudi Arabia pumping at maximum capacity, many members now want to jettison a mechanism that does not seem to affect the market and only inflicts further damage to the cartel’s credibility.