The biggest official news coming out of the Organization of Petroleum Exporting Countries' Mar. 17 meeting was that it was the first in the group's new secretariat offices in Vienna, the city where the group has headquartered more than 30 years.
As was widely expected, OPEC ministers again voted not to change their official production target.
Olivier Jakob at Petromatrix, Zug, Switzerland, said before the meeting, "Angola is again complaining that it should be free of quota; Nigeria is again complaining that it should have a higher quota. Nothing will be changed for them, but OPEC compliance at current world market prices will continue to trend lower, and the date for the next meeting is likely to be set sufficiently far in 2010 to allow most OPEC members to produce at zero compliance and bring Saudi Arabia back to its favored role of being the sole swing supplier to the world." Indeed, OPEC ministers scheduled their next meeting for Oct. 14 in Vienna, later in the year than usual.
In the latest meeting, there was virtually no discussion of the current over-production of some 2 million b/d among some members. At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, "Compliance is a highly sensitive issue within OPEC and at this meeting, the need to address falling compliance appears to have taken a back-seat to the need to project an overall message of unity within the organization. The fact that this meeting was so short indicates broad satisfaction within the organization with the current level of oil prices."
They said, "If prices were to stay within the $70-80/bbl band in which prices have stabilized since last summer, all OPEC members will be in a position to meet their budgets by the yearend." On Mar. 17, the average price for OPEC's basket of 12 benchmark crudes was up $1.63 to $78.25/bbl.
Like others, OPEC members expect world oil demand to increase this year. "In developed countries however, there is no end in sight for refinery shutdowns and low runs," said KBC analysts. "Developing countries are making up for the lost demand, with India and China as the main drivers of growth: in recent months, China has repeatedly broken records in terms of both refinery runs and crude imports. Two members of OPEC,
Saudi Arabia and Angola, make up about 35% of China's total monthly crude supply."
On the other hand, they noted Russia's new East Siberia Pacific Ocean (ESPO) pipeline has become a direct competitor for many Middle Eastern producers, particularly Saudi Arabia. "Despite declarations to the contrary by member countries, [OPEC] is annoyed and worried by ESPO and Russia's increasing foray into the Asian market. The introduction of ESPO has put pressure on differentials for similar grades produced in the Middle East."
OPEC also is concerned by Iraq's recent bidding round. "While it is a welcome situation that Iraq has returned as a stable oil producer," KBC analysts said, "the risk of a high-producing Iraq has increased. It potentially revives the traditional tension with Iran, which has failed to be as successful as Iraq in attracting investors. If Iraq were to successfully reach its production targets while Iran's production continues to slip in the absence of foreign investments, tensions could arise within the organization. Iraq, which is pumping around 2.5 million b/d currently, indicated on the sidelines of the meeting that it believed it would not be assigned a quota until its production reached 4 million b/d. This appears to be a case of drawing a line in the sand, rather than a position that would be accepted by other OPEC members. In the past, both [Iran and Iraq] have had similar production quotas."
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