Published: Thursday September 10, 2009 MYT 7:33:00 AM
Updated: Thursday September 10, 2009 MYT 9:11:55 AM

OPEC leaves crude output targets unchanged Thursday(update 2)

VIENNA: OPEC on Thursday decided to leave its production quotas unchanged, opting to take a cautious approach in a market awash in crude and a global economy still in the nascent stages of recovery.

The 12-nation Organization of Petroleum Exporting Countries said "market fundamentals have remained weak," even though current oil prices at about $71 are roughly double their level since December, when the group announced a record 4.2 million barrel per day cut from September 2008 levels.

The upswing in prices was a blessing for the bloc - supplier of roughly 35 percent of the world's crude - but OPEC ministers noted volatility remained in the market and a delicate touch was needed to ensure that the uptick does not derail global economic recovery efforts.

The meeting's closing communique said "whilst there are signs that economic recovery is under way, there remains great concern about the magnitude and pace of this recovery," especially in the West.

The group noted uncomfortably high crude and refined product levels, which reflect that refiners are not eager to churn out additional product.

"Since the market remains oversupplied and given the downside risks associated with the extremely fragile recovery, (OPEC) once again agreed to leave current production levels unchanged for the time being," the statement said.

The decision, announced in the early hours of Thursday, came as little surprise.

Saudi Oil Minister Ali Naimi, whose country is OPEC's biggest producer and its de facto leader, had sounded an upbeat tone about current crude prices and ruled out any possibility that a cut was in the offing.

OPEC ministers had indicated ahead of the meeting they were not intent on cutting quotas.

Instead, the focus was on boosting compliance with production targets - seen as key to sustaining prices in a market swimming in crude and still exposed to volatility linked to weak demand, the fluctuation in the U.S. dollar and a global economic recovery that has yet to firmly take root.

The group - excluding Iraq - has set a production target of slightly under 25 million barrels per day, but has been overshooting that mark by about 1 million barrels per day, according to analysts.

The increase in inventories is a major challenge for OPEC, especially as the U.S. driving season winds down and refiners gear up for the winter heating oil season with refined product inventories also high.

"When we look at fundamentals, we see this overhang with great concern," OPEC Secretary General Abdulla Salem el-Badri said.

"Of course, when the conference takes a decision, we would like our members to adhere to the decision," he said, noting that compliance was good, but not excellent.

But el-Badri also stressed that the group was not ready to jeopardize the economic recovery efforts by pushing for steep cuts.

"We are working on a very thin line," he said.

"We have to be very careful. We don't want to take action that will jeopardize the recovery."

For the better part of a year, volatility in prices has been the norm as supply and demand fundamentals were often overshadowed by investors using crude as a hedge against fluctuations in the dollar.

OPEC members continued to rail against such speculation, with Kuwaiti Oil Minister Sheik Ahmed Al Abdullah Al Sabah telling reporters at the start of the meeting that oil was now more a financial instrument than a commodity.

The group's president, Angolan Oil Minister Jose Botelho de Vasoncelos, said while members were satisfied with current price levels, rampant speculation is still buffeting crude markets.

"We are concerned about the continuing price volatility, which - once again - is happening when there is plenty of crude in the market," Botelho de Vasoncelos said, at the meeting's opening.

Even so, "we are optimistic that the darkest days of financial turmoil and economic recession are behind us," he said.

With no control over currency fluctuations or crude demand, OPEC members could focus only on the one factor within their grasp - supply.

But the strong compliance with quotas has waned over the past four months, dropping to between 68 and 70 percent, according to el-Badri.

The decline came in tandem with rising prices as some members - starved for hard currency - upped production to generate more revenue.

In doing so, however, they risked undermining the other element which OPEC can exert some control - credibility.

The decision Thursday appeared to mark a shift in policy for the group, analysts said.

Whereas OPEC, earlier this decade, "would have moved proactively, this time they chose not to," said David Kirsch of Washington-based consultancy PFC Energy.

"The ministers all acknowledged downside risks to both demand and prices."

"The reason is pretty clear: Because of the current economic risks, OPEC is adopting a different approach," he said.

"It's really hoping that the economy turns around and takes care of the current overhang in distillates somewhat naturally" instead of them intervening directly.

Another shift is also in the focus on prices.

While Saudi Arabia had repeatedly indicated earlier that $75 per barrel was a fair price for both consumers and producers, other members have begun to raise the threshold, though the shift seems more geared at setting a long-range, sustainable price versus a day-to-day price.

Kuwait's Al Sabah said $80 per barrel was fair, and Iran's new oil minister, Masoud Mirkazemi, said that "what is good is the price that will give us a good incentive for more investment."

"At the current value of the dollar, and the fact that the dollar depreciated, it is questionable if that is the right price," he said, referring to the $70 per barrel threshold.

"I think it has to go up given the fact that the dollar has depreciated so much."

But Kirsch said the comments come in the broader context of a long-term sustainable price, versus a day-to-day level, which el-Badri said has averaged about $54 per barrel for the group so far this year.

"There is a recognition that you don't get that (sustainable price) without a healthy economy," said Kirsch.

"And you have to put the healthy economy first." - AP

Earlier update

VIENNA: OPEC on Thursday decided to leave production quotas unchanged, opting to take a cautious approach in a market awash in crude and a global economy still in the nascent stages of recovery.

The 12-nation Organization of Petroleum Exporting Countries said "market fundamentals have remained weak," even though oil prices are roughly double their levels when the group announced in December a record 4.2 million barrel per day cut from September 2008 levels.

The upswing was a blessing for the bloc - supplier of roughly 35 percent of the world's crude - but OPEC ministers noted volatility remained in the market and a delicate touch was needed to ensure that the uptick in prices did not derail global economic recovery efforts.

The meeting's closing communique said "whilst there are signs that economic recovery is under way, there remains great concern about the magnitude and pace of this recovery," especially in the West.

The group noted uncomfortably high crude and refined product levels, which reflect that refiners are not eager to churn out additional product.

The statement said that "since the market remains oversupplied and given the downside risks associated with the extremely fragile recovery, (OPEC) once again agreed to leave current production levels unchanged for the time being."

The decision, announced in the early hours of Thursday, came as little surprise.

OPEC had indicated ahead of the meeting that it was more less intent on cutting quotas.

The increase in inventories has moved from crude oil to products, said OPEC Secretary General Abdulla Salem el-Badri.

"When we look at fundamentals, we see this overhand with great concern ... and hopefully we will ask our members for more compliance," he said.

But el-Badri also stressed that the group was not ready to jeopardize the economic recovery efforts by pushing for steep cuts.

"We are working on a very thin line," he said.

"We have to be very careful. We don't want to take action that will jeopardize the recovery."

For the better part of a year, volatility in prices has been the norm as supply and demand fundamentals were often overshadowed by investors offsetting the fluctuations in the dollar by turning to crude.

The group's president, Angolan Oil Minister Jose Botelho de Vasoncelos, said while members were satisfied with current prices levels, rampant speculation continued to buffet crude markets.

"We are concerned about the continuing price volatility, which - once again - is happening when there is plenty of crude in the market," Botelho de Vasoncelos said, at the meeting's opening.

Even so, "we are optimistic that the darkest days of financial turmoil and economic recession are behind us," he said. - AP

Earlier report

VIENNA: OPEC has decided to leave its crude output targets unchanged because global crude markets are "oversupplied" and there are lingering worries about economic recovery.

The 12-nation Organization of Petroleum Exporting Countries says "market fundamentals have remained weak" - even though oil has rebounded to around $70 a barrel in recent weeks after wild swings over the past 14 months.

Oil ministers meeting in Vienna decided Thursday that the time wasn't ripe to cut the current output target of just under 25 million barrels a day.

OPEC spokesman Omar Ibrahim told reporters: "While there are signs that economic recovery is under way, there remains great concern about the magnitude and pace of this recovery." - AP

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