June 13 (Bloomberg) -- Divisions within OPEC signal the group will probably keep its crude production ceiling unchanged tomorrow as falling prices limit Saudi Arabia’s ability to justify a higher quota.
Iran, facing a European Union embargo on its oil exports, and Venezuela have been joined by Iraq, Angola, Libya and Ecuador in saying that global crude supplies are already excessive. The group’s biggest producer, Saudi Arabia, is pumping near its highest level in three decades and said June 11 that there may be a need to boost the target.
Leaving the production quota unchanged may be the likeliest compromise because it allows smaller producers to protect revenue after Brent crude’s 23 percent decline since March, while preventing a price rally that would curb economic growth. The 12 members of the Organization of Petroleum Exporting Countries are meeting in Vienna a year on from a gathering that ended without consensus, prompting Saudi Oil Minister Ali al- Naimi to say that it was “the worst” he had ever attended.
“Oil demand remains high, but so do fears of the economy and that is going to weigh on members’ ability to make a decision on the quota,” Jason Schenker, the president of Prestige Economics LLC, a commodity researcher in Austin, Texas, said in an interview in Vienna yesterday. Brent will average $120 a barrel next year on forecasts of global growth, he said.
Brent crude, a benchmark contract for more than half the world’s oil, rose as high as $128.40 on the London-based ICE Futures Europe exchange on March 1. The contract dropped 0.9 percent yesterday to $97.14, the lowest settlement since Jan. 25, 2011, and traded as low as $96.67 today.
OPEC should raise its output ceiling by 500,000 to 1 million barrels a day to keep prices at current levels amid Europe’s debt crisis, two delegates from Middle Eastern member countries said.
Opposition from other nations, such as Iran and Venezuela, will probably result in the group’s collective output limit remaining unchanged, according to the delegates, who declined to be identified because a final decision will be made tomorrow.
The June 2011 gathering broke down because the Saudis and three other Gulf Cooperation Council nations were ready to supply more oil, while six members opposed an increase in production quotas.
Prospects for Europe’s economy are “not so positive” and will determine short-term market fundamentals, al-Naimi said today. He said on June 11 that there may be a need for a higher output ceiling.
While history shows that OPEC has always cut production in the past 10 years when faced with a price decline of more than 10 percent in the three months prior to a conference, the consensus among analysts is that prices are still too high to persuade all members to opt for such action this week. All 20 traders and analysts surveyed by Bloomberg News last week said they expect the group to keep its official daily production ceiling at 30 million barrels a day.
OPEC is collectively pumping 1.58 million barrels a day more than its target, according to a monthly report from its secretariat that uses secondary sources such as analysts and news agencies for output estimates.
“There is a big surplus in supply, and there is a big decline in prices, and this does not serve either the producers or the consumers,” Abdul Kareem al-Luaibi, Iraq’s oil minister said Vienna yesterday. “If the 30 million barrel-a-day production was respected, prices would have been stable,” said al-Luaibi, who also holds OPEC’s rotating presidency.
Saudi Arabia boosted output to 9.92 million barrels a day in May from 9.88 million barrels a day the previous month, according to OPEC estimates. The kingdom said it had cut production to 9.8 million from 10.1 million barrels in April.
Al-Luaibi said he supported “price stability” amid production outages in Syria and Yemen and tightening sanctions on Iran. An EU ban on buying Iranian oil takes effect on July 1.
“Given the extreme positions, maintaining the status quo is the most probable solution” for the ceiling, Chakib Khelil, a former Algerian oil minister who held the OPEC presidency in 2008, said in an interview in Vienna. “Oil demand is struggling, they never expected the European crisis to get so deep, you don’t know which country will be next to suffer.”
Mohammad Ali Khatibi, Iran’s OPEC governor, criticized members of the oil producer-group, including Saudi Arabia, for boosting production and seeking to replace Iranian crude on the global market, Press TV reported on June 9.
Saudi Arabia, Kuwait and the U.A.E. are “the biggest violators” of the OPEC output quota, the state-run news agency said, citing Khatibi. “It isn’t right that two or three nations compensate for a country that is targeted by sanctions,” Press TV reported Khatibi as saying. OPEC members shouldn’t work against each other, the news agency quoted him as saying.
OPEC said the outlook for oil consumption was clouded by Europe’s debt crisis and slowing growth in emerging nations.
“Ongoing challenges to world economic recovery have led to even larger uncertainties for oil demand in the second half of this year,” the group said in its monthly report yesterday. “High OPEC crude oil production standing above market requirements provides further confirmation that the market remains amply supplied.”