OPEC ministers agreed Sunday to keep output limits in place, convinced that oil prices near $50 a barrel are not stifling world growth.
The Organization of the Petroleum Exporting Countries took little time to decide on no change in supply quotas, despite worries among consumer nations about inflated fuel costs.
Gone are the concerns within the cartel last year about the effects of rising crude prices on the economic growth that drives demand for its oil.
With inflation in the world’s big economic powers in check and low interest rates still generating above-trend growth, OPEC ministers said, there is no reason to push for cheaper oil.
“Fifty-dollar oil will not play a big role in slowing up growth of the economy. Some analysts say even $60 oil will play a small role in affecting growth,” said the cartel’s president, Sheik Ahmed Fahd al Ahmed al Sabah of Kuwait.
“I am comfortable with the market between $45 and $55,” said Edmund Daukoru, presidential advisor on energy for OPEC member Nigeria.
The cartel appears ready to defend oil prices at a floor of about $40 a barrel for U.S. crude, or $35 for a reference basket of cartel crudes.
Ministers agreed to officially set aside their old $22-$28 range for the basket, set in March 2000, but are in no hurry to set a new target, saying prices are too volatile.
“We have to wait until the second quarter of this year to know exactly where the price indicator will head,” Ahmed Fahd said. “But I believe that $35 is a suitable price as an average price for the OPEC basket of crudes.”
Iranian Oil Minister Bijan Namdar Zanganeh said the basket price should be “somewhere between $30 and $40.”
Economists agree that there is little sign yet of an energy price shock, partly because the U.S. dollar’s decline on currency markets has protected non-dollar importers from the rise in dollar-denominated oil prices.
“Yes, oil prices are high, but the U.S. economy hasn’t skipped a beat and the weaker dollar has insulated many growing economies from a shock,” said Yasser Elguindi, an analyst for Medley Global Advisors.
“High oil prices are not hurting demand,” he said, “because the value of the dollar allows emerging economies to afford higher prices.”
OPEC ministers are confident that demand for an additional 1.5 million to 2 million barrels daily this year, led by China, will support another year of high prices. The cartel, which pumps more than a third of the world’s oil, has forecast global daily demand this quarter at 83.7 million barrels.
But meeting next in Isfahan, Iran, on March 16, the ministers may yet decide to shave production to contain the seasonal second-quarter stock buildup.
At Friday’s U.S. close of $47.18 a barrel, oil prices were deemed too high to justify arranging cuts for implementation at the start of April, when seasonal demand ebbs.
“Now is not the time to cut,” Zanganeh said.
Some in OPEC worry that the mid-March meeting will come a little late for comfort to adjust supply. Middle East exports take six weeks to reach Western markets.
Cartel President Ahmed Fahd said that should inventories build too quickly and prices fall, he could call a ministerial teleconference to take action.