VIENNA, 16 March 2007 — OPEC agreed yesterday to keep oil output restraints in place, balancing rapidly declining oil stocks in consumer nations against the risk recent selling in share markets could herald an economic downturn.
Ministers confirmed the widely expected decision after talks lasting little more than three hours.
OPEC, which pumps over a third of the world’s oil, had agreed to cuts totaling 1.7 million barrels per day, or six percent of supplies, at its previous two meetings. The emphasis now was on ensuring those reductions were implemented in full.
“I am very, very content,” Nigerian Minister of Energy Edmund Daukoru said of the outcome. “Our commitment is to keep the market supplied. To oversupply and create imbalance would make no sense at all.”
Ministers were concerned that two waves of selling on global equity markets this year could presage a bigger sell-off that would hurt economic growth and oil demand.
OPEC President and United Arab Emirates’ Oil Minister Mohammed ibn Dhaen Al-Hamli may convene another meeting in June, three months before the next scheduled meeting, if necessary.
Stocks wobbled this week on concerns over the impact of US home owners falling behind with mortgage payments. Equities and oil rose yesterday, with US crude up 10 cents at $58.26.
“We are watching developments on world stock markets, to assess their possible impact on the global economy and, in particular, on energy demand,” Hamli said.
“We remain concerned about the continuing weakness of the US dollar against other major currencies, notably the euro and the pound sterling, because this is having a significant effect on the purchasing power of oil-producing developing countries.”
In a statement released after the meeting, OPEC predicted oil markets would remain volatile. Analysts estimate OPEC has made good one million bpd of its pledged reductions. OPEC puts the figure closer to 1.2 million. “Compliance is good. It can be improved,” said Venezuelan Energy Minister Rafael Ramirez.
The International Energy Agency and some analysts believe OPEC may have gone too far with its supply curbs. According to the IEA, adviser to 26 industrialized countries, OECD countries could be headed for the largest first quarter drop in oil stocks for over 10 years.
“Given the current volatility in financial markets, greater reassurance that OPEC will ensure markets are amply supplied would have been welcome,” said Lawrence Eagles, head of the IEA’s Oil Industry and Markets Division.
Even the most conservative projection, OPEC’s own, puts demand for OPEC oil at 30.4 million bpd this year. The number includes Iraq and new member Angola, both of which are exempt from output restrictions for the time being.
The 10 OPEC members subject to restrictions currently have an output target of 25.8 million bpd.
The oil price is well down on its July 2006 peak of $78.40, but is still almost three times the level at the start of 2002 when Asian demand ignited. OPEC says prices must be sufficiently high to encourage investment without choking economic growth.
Gary Ross, CEO of PIRA Energy consultancy, said OPEC was trying to balance a tightening oil market and an uncertain economic outlook, which could undermine future demand.