OPEC holds production steady

The organisation backed away from a deeper cut in oil supply amid the worst global recession in decades.

VIENNA // OPEC backed away from a deeper cut in oil supply on Sunday amid the worst global recession in decades. World oil demand has collapsed over the past few months and consumers had asked the 12-member exporting group to keep prices down to help the economy recover. OPEC ministers meeting in Vienna yesterday said better compliance with a record cut in supply agreed to in December should be enough to restore balance to the global market. Compliance with the cut of 4.2 million barrels per day now stands at 79 per cent, OPEC said. "The conference emphasised the commitment to comply fully with the decision of 2008," the group said in a communique following the meeting. Ministers also agreed to reconvene in Vienna on May 28 for an extraordinary session to keep a close eye on markets. Oil prices have slumped by 70 per cent in eight months since hitting a record of $147 last July. But they have stablilised since OPEC's record cut in December, with crude oil futures for April delivery closing at $46.25 on Friday. Many OPEC members, including Algeria, Libya and Kuwait, had gone into the meeting wanting to impose further curbs on output. In its communique, OPEC said the existing agreement was already having an effect. Swollen inventories have begun to fall and the discount for crude oil for immediate delivery has eased. "What we are now trying to do is achieve a balanced market," said Mohamed al Hamli, the UAE Minister of Energy. "The price, we don't talk about. It is determined by the market." The International Energy Agency (IEA), the energy watchdog for 28 industrialised nations, expects oil markets to tighten significantly by June if OPEC sticks closely to its existing agreement. Analysts agreed. "If they had done another cut, they could have overtightened the market and potentially caused another spike in prices before the world economy is ready to handle it," said Mike Rothman, head of energy research at ISI. "The smart thing to do is maintain the cuts and work down inventories. If OPEC moves too quickly the market could rise too high before the economy is back on its feet." The world's largest oil consumer, the US, had repeatedly called on OPEC not to do anything at the Vienna meeting that might increase the price of oil when the world economy was in such a fragile state. President Barack Obama called Saudi King Abdullah on Friday, although the details of the conversation were not disclosed. Saudi Arabia, OPEC's most influential member, reiterated its belief that $70-$75 a barrel was an ideal price for oil. Ali al Naimi, the oil minister, said this price reflected the level at which high-cost producers could make a profit. "The ideal price?" Mr al Naimi said before the meeting. "If you want all the marginal producers to produce, all those poor guys who are shutting their wells today, they need a better price. Something around 70 to 75. Everybody would be happy." "Ethanol producers, tar sand producers, subsalt producers, they need between 60 and 75." But Salem el Badri, the secretary-general of OPEC, said the group was not seeking to hit this price target immediately. He said this year was expected to mark a low-point for the global economy, and exporters had to take their share of the pain. "We are not abandoning this price, but I think the time is not right," he said. Stephen Shork, an independent US oil analyst, said $75 a barrel was not a realistic target in the near-term. "The global economy can't handle it... In the current environment, you have a hard time justifying $50 oil," he said. "Will that continue to cause pain to oil producers? Absolutely." [e-mail] [e-mail]