Despite vows to cut output by an additional 1 million barrels per day, the oil group — OPEC — appears to be still grappling with its perennial problem of overproduction. And to a very great extent OPEC, at least at this moment, seems to be greatly unconcerned about the issue of quota busting — indeed for obvious reasons.
OPEC President Purnomo Yusgiantoro when asked about OPEC’s efforts to reduce market oil prices earlier the week clarified: “We currently allow (supply) leakage because prices have not yet fallen. We hope prices will be in the OPEC range of $22-$28.”
“Production is currently still above quota because we allow them (OPEC members) to produce more as prices are still high,” he added. That was indeed a very interesting explanation to the problem.
With several Saudi domestic refineries scheduled to be closed for maintenance between now and June, Saudi Arabia has diverted some of the crude from its domestic refineries to customers. Consequently allocations to Japanese refineries were expected to go up than the previous months. Three Japanese refineries have confirmed having received notification to the effect from Saudi Aramco. However, oil officials in the Kingdom were quick to clarify that Saudi Arabia had not changed its policy and was acting within the new lower limits.
The International Energy Agency has released its monthly oil market report, pegging OPEC output excluding Iraq, at 25.81 million bpd in March compared with an the April target of 23.5 million barrels per day. A two million bpd plus gap was still required to be plugged, so as to be in line with the new total output quota. Many agree that does not appear feasible, in many ways.
According to a Platts survey, excluding Iraq that currently does not participate in OPEC output accords, OPEC 10 production averaged 26.06 million barrels a day in March. This was even 30,000 bpd higher than the February output.
According to the survey, only two OPEC member countries produced within quota in March: Indonesia, whose production has been in decline for some time and which under produced its quota by 238,000 bpd; and Venezuela, whose output has not managed to recover levels seen before the two-month strike in the winter of 2002-2003 and which produced below its quota by 164,000 bpd.
Among the ten members included in the output quota scheme, only Indonesia, Iran and Saudi Arabia reduced their volumes in March by 60,000 bpd over their combined output in the month before — February.
With a total output quota of 24.5 million bpd until March this year, according to Platts figure, the OPEC as a group produced 25.850 million bpd in December 2003, 26.150 million bpd in January 2004, 26.030 million bpd in February 2004 and 26.060 million bpd in March 2004, overshooting its target in each of these months.
It thus seems the issue of overproduction will continue to haunt the OPEC for some time to come. The issue has been exacerbated by other factors including the intense pressure brought by the US. The Saudi envoy in Washington was invited for a meeting with President Bush immediately after the OPEC decision to cut output. Later, US Treasury Secretary John Snow said, “The US government has told Saudi Arabia and other OPEC members of its displeasure (at the output cut enforcement). We are very concerned. The actions of OPEC in reducing its quota are most unwelcome. We have let OPEC know that that we do not think well of these actions.” These words are now being reflected in the actions of some of the OPEC member states — in more than one way.