OPEC not seeking to worsen global recession
VIENNA – The OPEC cartel, which held oil output on Sunday, does not want to worsen a vicious global recession and hopes that recent deep production cuts will help stabilise crude prices, analysts said.
The 12-nation Organisation of Petroleum Exporting Countries (OPEC), which pumps 40 percent of world oil supplies, opted to refrain from cutting output quotas at a regular meeting in Vienna over the weekend.
Instead, OPEC chose to delay any decision and called an extraordinary meeting for 28 May, when ministers will reconvene in the Austrian capital to assess the market situation.
"OPEC have to tread a careful line with the global economy still in the balance," BetOnMarkets analyst Dave Evans told AFP.
"Any gains from a cut in production could be short-term if higher oil prices stunt any hopes of a global economic recovery. OPEC are mindful to not bite the hand that feeds them."
The cartel has already slashed production three times since September as the global financial crisis has pulled major energy consuming nations like Britain, Japan and the United States into recession, denting world energy demand.
Oil prices have fallen off a cliff since striking record highs above 147 dollars per barrel in July 2008. That has slashed OPEC members’ incomes.
But OPEC warned in Vienna that the world economy "is in the midst of the worst global economic recession in decades" and that was having a "deep impact on world oil demand."
The cartel said the global economy was forecast to contract by 0.2 percent in 2009 and estimated that world oil demand would drop by 1.0 million barrels per day (bpd) in 2009 to stand at 84.6 million bpd.
OPEC added Sunday that it would wait for the Group of 20 (G20) rich and emerging nations to meet next month to discuss their response to the economic crisis, before making another decision on oil production.
In the meantime, OPEC hopes that 100 percent compliance among its member nations over the deep cuts agreed late last year will help steady crude prices at current levels.
"In the long term, they want high pries but in the short term they are happy to live with this level of prices," said PFC Energy analyst Raad Alkadiri in Vienna.
"They believe that the decisions they have already taken will help, if not to improve, (then) certainly stabilise prices."
At the previous output meeting in December in Oran, Algeria, OPEC slashed a record 2.2 million barrels per day from its output quota, bringing the total cuts since September to 4.2 million barrels per day.
"The December meeting saw OPEC agree to cut production by a record nine percent and this has helped to stabilise oil prices even as the world economy deteriorates at a faster rate than expected," added Evans.
"Today’s decision not to cut could imply that OPEC see a further weakening of demand as the global slump continues," he warned.
Petromatrix analyst Olivier Jakob meanwhile added that the Vienna meeting was a clear sign that OPEC was reluctant to cut any further.
"We read the outcome of the meeting as basically showing that we are done with the level of OPEC cuts," Jakob said.
"On the way up to USD 150 (EUR 115.2, CHF 177.4) per barrel, OPEC had shown that they did not have much spare production capacity. They are now showing that they have no more capacity for cuts."
World oil prices tumbled below USD 45 a barrel in Asian trade Monday after OPEC’s decision not to cut output. New York’s main futures contract, light sweet crude for April, fell USD 1.91 to USD 44.34 a barrel while Brent North Sea crude for delivery in April declined USD 0.38 to USD 44.71.
AFP / Expatica