Opec mulls lifting output target

Opec is expected to discuss upping its oil output target next week at its first meeting since the beginning of the Arab Spring. Putting more crude on the market would help to appease consumers, who fear that high prices are stifling the global economic recovery.

Oil prices have reached as high as US$127 a barrel in recent months over concerns about potential disruptions to shipping routes and drops in production. Khaled el Fiqi / EPA

Opec is expected to consider increasing its output target by as much as 2.2 million barrels a day to bring down oil prices, analysts and delegates said yesterday.

The organisation, which controls more than 40 per cent of the world's crude supply, is to meet next week for the first time since December.

There have since been a series of uprisings across the Middle East and North Africa, fuelling uncertainty in the oil market.

Concerns about potential disruptions to shipping routes and drops in production, particularly in Libya, have sent prices as high as US$127 a barrel in recent months.

"This time [raised production levels] will be discussed," said an Opec delegate, who asked not to be identified. But when asked about the extent of support among member nations to do so, he said: "You cannot predict Opec."

Until yesterday most observers believed Opec would leave its ceiling unchanged and simply allow Saudi Arabia to keep covering the bulk of the shortfall from Libya, now at a fraction of its 1.6 million barrels a day (bpd) before the protests against the regime of Muammar Qaddafi began.

But conventional wisdom shifted with a report yesterday by the trade publication Oil Daily, which stated Opec would discuss pushing up the ceiling.

The oil organisation has not changed its output target since 2008, when it stepped in with its largest cut on record. This stabilised the market when prices collapsed after hitting an all-time high of $147 a barrel. Opec's ceiling is 24.8 million bpd. However, the 11 Opec countries bound by quotas actually pumped 26.3 million bpd in April, said Torbjoern Kjus, an analyst at DnB NOR in Oslo. Iraq, outside the quota system for more than a decade, pumps 2.2 million bpd.

He predicted Opec would raise its official ceiling closer to the actual amount that it now pumps, or 27 million bpd. Even if the ceiling is increased by 2.2 million barrels, production might not actually rise by this much, he added.

Such a move would appear to respond to a call from the International Energy Agency (IEA), the organisation based in Paris that represents 28 oil-importing countries, to bring more oil to the market.

"There is a clear, urgent need for additional supplies on a more competitive basis," the IEA said last month.

But an Opec sub-committee, which includes the organisation's Libyan secretary general, Abdullah al Badri, has reservations about making a formal ceiling change.

If Libya's production were suddenly to bounce back, it could flood the market and send prices downward, some delegates fear. Opec would not be able to change its production ceiling until its next meeting in six months, unless it decided to call an emergency meeting.

"Why the price goes up is because of the current crisis in the Arab world, particularly in Libya. How about if the crisis is over and everything has gone back to normal in Libya?" said a delegate, who is involved in the Ministerial Monitoring Sub-Committee. "They should be very realistic."

Next week the sub-committee is expected to issue a recommendation that although current prices are too high, it would be unwise to change the ceiling, according to the Opec delegate.

Opec's 12 member countries, which include Saudi Arabia and the UAE, are to converge in Vienna on Wednesday for the organisation's most politically fraught meeting in years.

Iran, which holds Opec's rotating presidency, is without an oil minister after its president sacked three members of cabinet.