Ministers of the Organization of Petroleum Exporting Countries, noting the continued adverse effects of speculation on oil markets, agreed Dec. 14 at their planned meeting to maintain current production at 30 million b/d.
"The heightened price volatility witnessed during the course of the year 2011 is predominantly a reflection of increased levels of speculation in the commodities markets, exacerbated by geopolitical tensions, rather than a result of supply-demand fundamentals," OPEC said.
OPEC noted that downside risks facing the global economy continue to include the sovereign debt crisis in the Euro-zone, persistently high unemployment in the advanced economies, and inflation risk in the emerging economies.
It also noted that planned austerity measures, not only in the Euro-zone but also in other economies of the Organization for Economic Cooperation and Development member countries, are likely to contribute to lower economic growth in the coming year.
Although world oil demand is forecast to increase slightly during the year 2012, OPEC said the rise is expected to be "partially offset" by a projected increase in non-OPEC supply.
As a result, ministers decided to maintain the group's current production level, including production from Libya, with member countries taking individual measures, including voluntary downward adjustments of output, to "ensure market balance and reasonable price levels."
Current level maintained
In effect, the group decided to maintain its current level of production, which is more than 5 million b/d higher than the officially agreed 24.845 million b/d, while allowing for the possibility of individual members boosting overall output beyond the agreed 30 million b/d.
Most OPEC members are said to be producing well above their individual quotas at the moment, with Saudi Arabia pumping 10 million b/d in November against a quota of 8.1 million b/d. According to OPEC figures, even Venezuela pumped 400,000 b/d above its 2 million b/d quota in November.
Recently, the International Energy Agency said in its monthly report that OPEC produced 30.68 million b/d in November as Saudi Arabia and Kuwait each produced extra crude despite Libya's efforts towards returning to its prewar output level.
IEA said OPEC has also been producing far above its official output quota of 24.84 million b/d, which does not include output from Iraq. IEA estimated that OPEC's other 11 members together produced 27.97 million b/d of oil in November, still above OPEC official quotas.
However, OPEC Sec.-Gen. Abdalla el-Badri shrugged off concerns about going beyond the new limit as a result of over-production by any individual member: "This is the ceiling that we agreed. We are not going to bypass it. We are going to adhere to it."
Individual quotas addressed
Still, el-Badri said OPEC would address the question of individual production quotas for the group's members when Libya hits its full prewar output of 1.6 million b/d. Currently, Libya is producing 1 million b/d, with 1.3 million b/d expected by yearend 2012.
Ahead of the meeting, Venezuelan Oil Minister Rafael Ramirez said the group would be looking "to reduce the level of production of each country to open a space for Libya production."
Ramirez was reflecting the view, held by other price hawks as well, that with Libyan supplies rising more quickly than expected in the aftermath of the country's civil war, world oil inventories will increase if OPEC maintains output near current levels.
But that view was not shared by Saudi Arabia's Minister of Petroleum and Mineral Resources Ali I. Al-Naimi.
"If Libya increases it doesn't necessarily mean Saudi will cut," said Al-Naimi. "We don't react to that, we react to market demand," he said.
Price hawks Iran, Venezuela, and Algeria—all of whom already produce at full capacity—want to keep oil prices above $100/bbl, while price doves Saudi Arabia, Kuwait, and the UAE prefer prices in the $80-100/bbl range in an effort to help nurture global economic growth.
Al-Naimi's view was welcomed by Fatih Birol, chief economist at the International Energy Agency, who said, "Saudi Arabia is the central banker of the oil market and the decision that they will bring more oil to the market is definitely a good one."
David Fyfe, head of IEA's oil markets division, agreed and praised the OPEC decision as sensible, saying it would help ensure that the oil market is reasonably balanced in 2012.
London analyst John Hall said the agreement was "very positive" for "both OPEC's reputation and the market." Yet Hall told Dow Jones News that the decision likely wouldn't affect actual output.
"Members will carry on as they have been," Hall said, adding, "They will only produce what they can sell, but in reality there is no one out there that could flood the market."
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