Opec is widely expected to resist consumer calls for more oil when it meets on Friday, worried by a slowing United States economy and the onset of seasonally lower demand in the spring.
Oil has fallen to around $91 a barrel from a record $100,09 on January 3, easing pressure on Opec to pump more. The group could even start to trim supply as heating demand eases in the northern hemisphere, analysts say.
”Why on earth would they want to raise production when there is a lot of concern about economic growth and oil demand growth?” said Mike Wittner of SociÃ©tÃ© GÃ©nÃ©rale. ”I think they’re going to roll over the formal quotas.”
Concern is growing that the United States is slipping into a recession, which could drag growth in other countries lower and curb oil demand. The world’s top fuel burner has urged Opec to raise supplies to help ease high prices.
But there is a common view in the 13-member Organisation of the Petroleum Exporting Countries, source of more than a third of the world’s oil, that consumers have enough oil for now.
Top world exporter Saudi Arabia has said Opec will raise output when the market justifies it, but avoided comment on what ministers will do at their February 1 meeting in Vienna. The group meets again on March 5.
”We don’t feel there is a shortage of oil on the market today,” Iraq’s Oil Minister, Hussain al-Shahristani, said during the World Economic Forum in Davos last week.
”There does not seem to be a necessity to revise production figures, either to increase or decrease, for the time being.”
At its previous meeting, held last month with prices around $90 a barrel, Opec agreed to keep output steady.
Concern about the United States economy has grown since then and the second quarter, when oil demand normally declines as consumers in the northern hemisphere use less fuel for heating, is also looming.
”I think Opec will sit on the fence,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas.
”They will cite economic uncertainty and seasonally weaker product demand ahead as reasons not to add extra supply.”
Only Indonesia, with limited influence on Opec policy as one of its smallest producers, has raised the possibility of the group increasing output. Most members are urging caution.
”We have to take our steps very carefully because we are entering the second quarter,” Qatar’s Oil Minister, Abdullah al-Attiyah, told Reuters last week.
”Opec should be careful to study two topics: the recession and the second quarter.”
The group’s in-house economists estimate that world oil demand in the second quarter will average 85,61-million barrels per day, lower than 87,32-million bpd in the first three months of 2008.
Consumers take a different view. The International Energy Agency, adviser to developed countries, is worried about falling inventories, which are below the five-year average in industrialised nations.
US Energy Secretary Sam Bodman, who was on a tour of Middle East countries earlier this month, has urged Saudi Arabia and other Opec members to raise output.
The production target for the 12 Opec members bound by supply decisions — all except Iraq — rose to 29,67-million bpd as of January 1 when new members Ecuador and Angola became included in the output ceiling.
The 12 countries pumped close to that in December and some estimates suggest the group is pumping even more in January.
If Opec decides to trim supply in coming months, it would probably do so quietly rather than announce a reduction in its supply target, given the pressure from consumer nations for more oil, analysts said.
”They may start to trim output informally. I think that will happen in March or April, depending on what happens to prices,” Wittner said.
”That way, they sidestep the political sensitivities.” – Reuters