World oil output in focus as OPEC prepares to meet

10th October 2010, Comments 0 comments

OPEC, which pumps 40 percent of the world's oil, meets in Vienna this week to assess member output levels against a backdrop of steady prices and a huge jump in Iraq's estimated reserves.

The Organization of Petroleum Exporting Countries (OPEC) has had an official production level of 24.84 million barrels a day since January 2009 after a massive cut in output that was aimed at halting a slide in prices.

Crude oil prices, which tumbled from historic highs of more than 147 dollars in July 2008 to about 32 dollars in December of that year in response to the global recession, have since clawed back on economic recovery hopes.

"OPEC will meet on (Thursday) October 14th and it is assumed that they will leave things unchanged as the oil price is exactly where" de-facto head Saudi Arabia wants it, said Olivier Jakob, analyst for the Petromatrix consultancy.

Oil has traded roughly between 70 and 80 dollars for the past year -- a level deemed reasonable by OPEC members still faced with an uncertain demand outlook as countries struggle to recover from the recession.

Although prices hit five-month highs above 85 dollars last week thanks to a weaker US currency, analysts believe they will fall back into the 70-80 dollar range.

"We do not see much scope for sustained gains ... and the rally is likely to exhaust itself once attention turns back to fundamentals (of supply and demand)," said Andrey Kryuchenkov, an analyst at financial group VTB Capital.

OPEC comprises 12 members -- Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Iraq, the only member without a production quota owing to the country's unrest, last week it announced a sharp rise in its proven oil reserves.

The new figure of 143.1 billion barrels represents a 24-percent increase over the previous estimate but still leaves it ranking behind Saudi Arabia and Venezuela in terms of known reserves, according to OPEC.

Experts say a significant hike in Iraq's oil output is far from certain.

"While licensing rounds with international oil companies were conducted last year with a view to develop Iraq's vast oil reserves, there is considerable uncertainty regarding the timeline of when production capacity will ultimately come on line," noted BNP Paribas analyst Harry Tchilinguirian.

As a group, OPEC remains a key influence on oil markets 50 years after its birth, with non-OPEC output set to fall and consumers continuing to burn massive amounts of fossil fuels despite higher demand for renewable energy.

Its members meanwhile have a tradition of not respecting individual production quotas and tend to over-supply the market as prices rise.

OPEC compliance stood at only 53 percent in August, compared with an unprecedented 80 percent when prices hit around 30 dollars in 2008, according to the International Energy Agency.

"From the start of 2010, oil prices have been remarkably stable, anchored in the 70-80 dollar range," noted analysts at Credit Agricole.

"This range appears to satisfy every one, producers and consumers, and to be actively defended by OPEC members. This price range appears compatible with fundamentals through to the end of 2011, assuming that OPEC maintains good discipline," they said.

© 2010 AFP

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