Opec banks on end of recession to drive oil prices
Opec oil ministers appear ready to sit back and let a recovering world economy lift crude prices instead of trying to bolster them by cutting back production.
A meeting of the 12-nation oil producing cartel in Vienna still has to make a formal decision on Thursday on whether to keep output steady or turn down the spigots—a move normally taken in times like these where the world is oversupplied and demand is anaemic.
But there was little drama ahead of the meeting, with most oil ministers saying they expected the status quo to remain unchanged.
Even Oil Minister Golam Hossen Nozari of Iran—one of Opec’s price hawks—said on Wednesday he expected Opec to keep output at present levels.
This sentiment appeared due to optimism that the United States—the world’s largest oil consumer—is gradually emerging from a severe recession. Oil investors took heart from Tuesday’s report from private research group the Conference Board that showed US consumer confidence in May soared to its highest level since last September.
A barrel of crude already fetches more than $60 compared to levels near $30 just four months ago. And that spike has come despite continued anaemic worldwide demand and gloomy future forecasts.
Benchmark crude for July delivery rose $1 to settle at $63,45 a barrel on the New York Mercantile Exchange.
Prices haven’t been that high since early November. Saudi Oil Minister Ali Naimi on Wednesday suggested greater demand later this year would come only from Asia, with the US and Europe continuing to lag.
Instead of being powered by demand, analysts say oil prices have risen because of international stock markets. But although stocks normally rise six to nine months before the actual economy starts growing again, a series of economic reports have recently suggested that the recession is bottoming out, if not yet ending.
About 74% of the forecasters in a survey by the National Association for Business Economics in the US expect the recession, which started in December 2007, to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year and the remaining 7% believe the recession will end in the first quarter of 2010.
Setting the tone for the Thursday meeting is Saudi Arabia—the Saudis account for close to a third of Opec’s total production and what they say is usually informal policy for the rest of bloc.
“There is no need to cut production,” Naimi told reporters on Wednesday, adding the group should “stay the course.” He said oil prices would likely reach about $75 a barrel by the end of the year due to growing demand in Asia.
Others lined up behind Naimi.
“Tomorrow, in my opinion, there won’t be any cut,” said Chakib Khelil, Algeria’s oil minister. And Shokri Ghanem, his Libyan counterpart, told reporters said he saw no “dire need” for reductions.
Opec’s president indicated a decision already had been reached even ahead of Thursday’s formal meeting. Asked if he expected only brief consultations on Thursday, Jose Maria Botelho de Vasconcelos, who is also Angola’s oil minister, replied “yes”.
Cuts agreed on since September were meant to take a daily 4,2-million barrels off the market. But the 11 members under production quotas are still overshooting their joint daily target level of just less than 25-million barrels by more than 800 000 barrels a day.
While 100% compliance with quotas is unlikely, even an additional 10% compliance would take more than 400 000 barrels a day off markets, slicing into oversupply while reducing the price shock that an outright cut in existing quotas would cause.
Thursday’s meeting is likely to opt for nothing more drastic than renewing calls on members to slash overproduction and warning that Opec is ready to convene for an emergency meeting should prices slide suddenly.
JBC Energy in Vienna, however, said the huge global stocks of oil could lead to a future Opec output cut even if demand picks up.
“If the group sticks to its current production target on Thursday it is very likely they will have to reduce output at a later meeting,” JBC said.—Sapa-AP