By Fiona MacDonald and Ayesha Daya
May 25 (Bloomberg) -- OPEC ministers are “not yet” concerned that oil costs less than $70 a barrel, and there is no need for the group to hold an emergency meeting, Kuwait’s oil minister said.
The group needs to provide a “clear signal” of a price floor to avoid investors pulling out of the oil market, JP Morgan Chase & Co said in a research note today.
OPEC is planning to do “nothing” about the 26 percent drop this month in oil prices, Sheikh Ahmad al-Abdullah al-Sabah told reporters in Kuwait today. “We ask for more compliance” by group members with their agreed output limits, he said.
Oil, which traded as high as $87.15 a barrel on May 3, dropped as low as $64.24 on May 20 as investors sold the commodity on concern that Europe’s debt crisis might spread. Crude for July delivery fell as much as $3.06, or 4.4 percent, to $67.15 a barrel today on the New York Mercantile Exchange.
Organization of Petroleum Exporting Countries Secretary- General Abdalla El-Badri has said that prices of between $70 and $90 are reasonable to encourage producers to expand exploration. Saudi Arabian Oil Minister Ali al-Naimi, representing the group’s biggest exporter, said on March 30 that he hoped prices would remain in a range of $70 to $80 a barrel.
OPEC agreed in March to uphold output quotas for a fifth time. The group’s members slashed their quotas at a meeting in December 2008, after global energy demand fell amid the worst recession since World War II. Crude oil prices slumped from a record $147 a barrel in July of that year to $32 in December.
Members currently exceed those allocations by about 2 million barrels a day, meaning they’re maintaining 53 percent of a promised 4.2 million barrel-a-day cutback, according to Bloomberg estimates.
While Gulf nations Saudi Arabia, Kuwait and the United Arab Emirates have stuck to their agreed targets, other members are producing close to capacity. No minister has called for an emergency meeting.
“Probably the most bearish factor in the market though is the mounting tensions within OPEC,” JPMorgan said in the note. “If the market believes the core trio will leave supply alone until compliance in the rest of the organization improves, it will feel that price is on the losing end of a game of chicken.”
The group won’t meet before its next scheduled gathering on Oct. 14 as the oil price slump has been caused by uncertainties linked to the financial crisis in Greece, and not to crude supply and demand, Algeria’s Oil Minister Chakib Khelil said May 19, echoing comments from Qatari Oil Minister Abdullah bin Hamad al-Attiyah on May 15. Saudi Arabia’s Minister of Finance Ibrahim al-Assaf said May 18 he’s “not worried” about the price drop.
OPEC is “tense” about the decline in oil prices and may call an extraordinary meeting if the drop continues, Angolan Oil Minister Jose Maria Botelho de Vasconcelos said May 18. Sheikh Ahmad of Kuwait said May 8 that oil prices below $65 a barrel would “ring a bell” for OPEC ministers to hold an emergency meeting.
--Editors: Raj Rajendran, Jonas Bergman.
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