VIENNA: OPEC ministers decided yesterday not to directly cut oil output in an effort to raise prices, but to focus instead on stopping individual members from producing above their quotas.
The decision was sure to be welcomed by the US and other major oil consuming countries, because setting lower output limits would have likely resulted in higher crude prices that would jolt the anemic world economy. Cheap oil has been a rare bright spot in the otherwise gloomy global economic picture, selling in the mid- to upper $30s this week — less than a third of its summer record levels. Those prices have forced many OPEC members to revise government spending and warn that they cannot invest in further oil production.
Some OPEC members had urged direct oil output cuts by setting lower levels, as OPEC usually does when it wants to raise prices. But others, led by OPEC’s main producer, Saudi Arabia, had instead favored calling on overproducing members to comply with their quotas as a way of reducing world oil supply without the risk of causing prices to rise rapidly.
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 under 25 million barrels by more than 800,000 barrels a day, or 21 percent above formal set limits.
While 100 percent compliance to quotas is unlikely, even an additional 10 percent 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 have caused.
“We have urged our member countries to comply,” said OPEC Secretary-General Abdalla El-Badri. “We have an overhang of 800,000 to 900,000 barrels.
“If we have more compliance, we can reduce it further.”
But more drastic measures could be enacted within a few months. The ministers agreed to meet in special session on May 28 to review prices and supply — and possibly decide to reduce the oil producing club’s output levels, if they think that crude is too cheap.
Russia is the world’s second largest producer of crude — after OPEC powerhouse Saudi Arabia — and OPEC has repeatedly called in recent months on the Russians to cooperate as it seeks to bolster prices that fell to the low $30s a barrel after summer highs close to $150.
Russia will “be cutting oil exports while increasing domestic consumption and expanding oil refining, said Russian Deputy Premier Igor Sechin, adding that his country also would delay the development of two oil fields in the northwest.
And he told the OPEC meeting that Russian oil production had already decreased by 1.9 percent in the first two months of the year.
The cuts appeared to be a way of dressing up Moscow’s inability to keep up present output levels because of lagging investment that is expected to result in an output decline of around 2 percent this year.
At its peak in early 2008, Russia was producing 9.5 million barrels of crude a day.
Sechin also said that sending a permanent Russian observer to OPEC was under discussion. Moscow first floated that idea late last year.