OPEC HAS OFFICIALLY agreed in its ministerial meeting to keep its production quotas steady, as expected, and called for members to improve their compliance with production cuts agreed upon last year.
The group's decision in the Angolan capital marked the fourth time in 2009 that OPEC has left its production target unchanged. OPEC oil ministers had said ahead of the meeting that they expected the group would keep oil-output targets steady because oil prices remain at comfortable levels. "The decision we have taken today is a roll over" of previously agreed production quotas, Algerian Oil Minister Chakib Khelil said. Yet oil inventories remain at historically high levels, and OPEC wants to trim them by encouraging members to improve their compliance with the combined 4.2 million barrels a day of output cuts they agreed upon late last year. They pledged the cuts at the time to stop a steep plunge in oil prices as economic recession eroded demand for petroleum products. OPEC members' initial compliance with tightened quotas was strong, but it has slipped this year as oil prices have returned to historically high levels.
Ministers have discussed the matter and agreed to work to improve their discipline with existing quotas. "We talked about compliance," said Shokri Ghanem, head of the Libyan National Oil Co. "We called on members to comply by each one's production quota." Secretary General Abdalla Salem el-Badri said earlier that he wants to see OPEC members increase their compliance to more than 75 per cent of the output cuts the group agreed upon last year. Saudi Arabian Oil Minister Ali Al Naimi echoed el-Badri's call for improved OPEC quota compliance, adding that he prefers to see compliance at an even greater level: "We would like compliance at 100 per cent" Naimi said. Many analysts estimate OPEC's compliance with its production ceiling to be around 60 per cent, though El-Badri didn't provide a figure on where OPEC's compliance currently stands.
Improved compliance would reduce the group's production and could help to slim down bloated oil inventories. But el-Badri said he isn't worried that current high storage levels will lead to a collapse in oil prices. "I'm not happy with stock levels, but we have to look at the long term," el-Badri said.
The oil market showed little initial reaction to OPEC's decision to keep its production target unchanged. Light, sweet crude traded around $73.38 a barrel after oil ministers announced the group's decision. "OPEC not changing anything was fully expected," said Petromatrix analyst Olivier Jakob.
"OPEC has been leaking more oil out, and only lower oil prices can bring higher compliance." European oil market analysts said that in reality, crude prices trading above $70 a barrel make compliance relative to targeted cuts less pressing for OPEC members. "The question is whether the cartel members will be up to discussing production capacity versus quota allocation," said Harry Tchilinguirian, head of research at BNPP commodity derivatives in Paris. Angola and Iran account for most of the cartel's overproduction, Tchilinguirian said. OPEC will meet again March 17 in Vienna, Ghanem said. Ecuador will hold the annually rotating OPEC presidency in 2010, succeeding Angola in the role.
