Wednesday, October 13, 2010

OPEC ponders oil output amid uncertain price outlook

VIENNA — OPEC looked set Wednesday to keep oil production levels steady while the outlook for prices appeared uncertain against a backdrop of a fragile economic recovery and falling dollar.

"Yes, there is a consensus between members," Ecuadorian minister Wilson Pastor-Morris -- who is president this year of the Organization of Petroleum Exporting Countries -- told reporters on the eve of a ministerial meeting at the body's Vienna headquarters.

"We are happy with current prices ... (we are) not worried about oil rising above 80 dollars a barrel," Pastor-Morris said.

Other OPEC ministers arriving in Austrian capital also suggested the cartel would hold its official output quota at 24.84 million barrels a day, with the focus of the meeting shifting to an improvement in compliance instead.

With prices almost trebling from lows of around 30 dollars a barrel at the height of the financial crisis in late 2008, members have been producing above their set quotas to boost revenues.

Ahead of Thursday's meeting and mindful that a spike in prices could harm global economic recovery, OPEC kingpin Saudi Arabia said it was happy for crude to stay at 70-80 dollars, where it has traded for much of the past year.

However, Algeria and Libya have said in recent days that they would like to see crude at 90-100 dollars as OPEC -- which pumps 40 percent of the world's oil -- seeks to ramp up investment in energy infrastructure.

Oil prices rallied on Wednesday, trading above 84 dollars in London on the back of a weak dollar, strong Chinese crude imports data and ahead of OPEC's first meeting in seven months, traders said.

"The quotas will be maintained (on Thursday). No changes are foreseen," Ecuador's Pastor-Morris said, predicting that prices would "hold steady" going forward.

Analysts said prices have found support in recent months from a struggling dollar, which can make dollar-denominated crude oil cheaper for buyers holding other currencies such as the euro.

OPEC members claim that current prices reflect market fundamentals of supply and demand.

"Whilst OPEC may be broadly happy with the oil price now, so as not to damage the fragile recovery, this is unlikely to hold once oil demand starts to pick up," said Rebecca Seabury, an analyst at UK energy consultancy Inenco.

"As demand increases they will use restricted investment in new production fields (resulting from) ... the low price as a reason to justify rapid price increases."

Although global demand for oil is already rising surprisingly fast, the price is set for a 75-80 dollar range despite talk of 100 dollars a barrel, the IEA said on Wednesday.

The International Energy Agency, representing leading oil consumer nations, revised up its demand forecast for oil, by more than OPEC had done on Tuesday, mainly because of an economic upturn in industrialised countries.

But it hedged its forecast with "great uncertainties," and noted signals from OPEC that its meeting on Thursday would freeze production quotas and focus instead on overproduction.

Crude oil prices tumbled from historic highs of more than 147 dollars in July 2008 to about 32 dollars in December of that year in response to the global recession but have since clawed back on economic recovery hopes.

OPEC remains a key influence on oil markets 50 years after its birth, with non-OPEC output set to fall and consumers continuing to burn massive amounts of fossil fuels despite higher demand for renewable energy.

It comprises 12 members -- Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Iraq is the only member without a production quota owing to the country's unrest.

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