OPEC likely to keep production unchanged
The Organization of the Petroleum Exporting Countries, supplier of 40% of the world’s oil, will probably keep producing at a near-record pace as $106-a-barrel crude squeezes the global economy.
“Our position is to leave everything unchanged,” Ecuador Energy and Mines Minister Galo Chiriboga told reporters as he arrived at his hotel in Vienna on Sunday. “We believe the market is well-supplied.”
The 13-nation OPEC will keep production unchanged at a meeting today in Vienna, according to 29 of 32 energy analysts surveyed by Bloomberg last week. Iran and Venezuela will urge the group to trim supplies to prevent oil prices from retreating below $100 a barrel.
“They want to prevent a buildup of crude stocks, which rules out an increase, but don’t want to send prices skyrocketing by announcing a cut,” said Mike Wittner, head of oil research at Societe Generale in London. “OPEC won’t take any formal action.”
Oil has plunged $41 a barrel, or 28%, from its record $147.27 on July 11 as economies slowed, the dollar halted a three-year slide against the euro and Hurricane Gustav caused almost no damage to U.S. drilling platforms and refineries. Demand for crude will increase 1% in 2009, the slowest growth in seven years, according to an Aug. 15 forecast by OPEC.
All the countries except Saudi Arabia are pumping at close to capacity to meet rising demand and compensate for declining supplies from Nigeria and Venezuela.
Although leaving quotas unchanged, the group may curtail production to prevent inventories from swelling, said Adam Sieminski, Deutsche Bank’s chief energy economist in Washington.
“If prices are rising, they will leave production alone, and if they are falling, they will trim a little,” he said.
Record oil prices spurred European inflation to 4% in July and contributed to the first quarterly contraction in the region’s economy since the euro was introduced almost a decade ago.
In the U.S., gasoline demand fell for 19 consecutive weeks, according to MasterCard Inc., with the average fuel price now near $3.70 a gallon.
The world economy is “precariously close” to a recession in 2009, UBS said last month as it cut next year’s global growth forecast to 2.9%. It considers a 2.5% rate consistent with a recession.
Oil for October delivery fell for a sixth consecutive session Friday, dropping $1.66 to $106.23 a barrel on the New York Mercantile Exchange, the lowest settlement price for a contract closest to expiration since April 4.
Oil stockpiles in industrialized nations, excluding government reserves, were above average in July and enough to meet 54 days of demand, according to the International Energy Agency.
The agency’s executive director, Nobuo Tanaka, recommended that OPEC maintain output levels, adding that recent price declines reflect “the slowdown of the economy.”
An OPEC production cut would “surprise” the market, Jan Stuart, a global oil economist with UBS Securities, said Friday in a Bloomberg Radio interview from New York.
“Where Saudi Arabia is in this debate is crucially important; that is your linchpin,” Stuart said. “We don’t know what the Saudis are ready to defend, and we do know the Saudis are the ones that would have to do most of the production cutting.”
Venezuela and Iran, OPEC’s second- and third-largest producers, want the group to consider reducing supply. Venezuelan President Hugo Chavez said Aug. 27 that he considered prices of just over $100 a barrel as “fair.”
“Returning to quotas does not mean a production cut. It’s a return to previous output commitments,” Iranian OPEC Gov. Mohammad Ali Khatibi said.
“The result will be a decrease in output, but it’s different from a cut in the ceiling.”
