Members of the Organization of Petroleum Exporting Countries left their 30 million-barrel-per-day quota for oil production intact Wednesday, indicating the cartel’s satisfaction with current crude prices and its reluctance to do anything to further weaken the world economy.
But even as it stuck with the status quo, OPEC may face serious tests in the near future, as rising production in the United States and elsewhere threatens the cartel’s market share and influence in the world.
So far, though, OPEC has had an easy year. Crude prices have been stable and within the range the organization favors. Although oil prices for U.S.-produced oil have fallen into the range of $80 to $90 a barrel, the price of a global benchmark, Brent crude, remains well above $100 per barrel.
The OPEC basket price, which members consider representative of what they receive for their oil, was $104.80 a barrel on Tuesday.
“At these prices no one wants to rock the boat,” said Bhushan Bahree, an OPEC analyst at IHS Cera , who was in the meeting, held in Vienna.
But the global oil market is undergoing significant change, led by the surge in U.S. oil production, which reached 6.5 million barrels a day in September. That was the highest since 1998 and a 900,000 barrels-per-day increase from a year earlier, according to the U.S. Energy Information Administration.
Meanwhile, Iraq, an OPEC member not subject to the organization’s quotas because the country is recovering from the ravages of war, is also rapidly increasing production, reaching levels last seen in the late 1990s.
OPEC probably cannot avoid being buffeted by these shifts and their impact on market share.
“More production in the U.S. means there is less available for OPEC,” said Jamie Webster, an analyst for Washington-based consultants PFCEnergy, who was in Vienna observing the meeting.
Approximately a third of global oil output is produced by the cartel’s 12 members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
The high oil prices of recent years have led oil companies to invest heavily in exploration and in techniques to extract hydrocarbons that until recently were off limits, including the shale formations in North Dakota in the United States. As a result, supply is increasing faster than just about anyone expected, while demand remains sluggish as a result of the tepid world economy.
IHS Cera, a market analysis firm, expects the global supply of oil from non-OPEC producers like the United States, Kazakhstan and Brazil to grow by 1.2 million barrels per day next year. That would be well ahead of world demand, which the firm expects to increase by only 800,000 barrels a day in 2013.
Should this prediction, which is in line with the cartel’s own forecast, prove to be on the mark, OPEC will probably need to trim its output, giving up market share, to buffer falling prices.
The signs are that — quota notwithstanding — it is already cutting back. An OPEC report published Tuesday showed that Saudi Arabia, the key decision maker in the group, had already reduced output by 200,000 barrels a day in November, to 9.5 million barrels per day, its lowest level since October 2011.
“If the world ends up with a lot more capacity to produce oil than appetite to consume it, then either OPEC countries have to figure out a way to cut back production or prices will crash,” said Michael Levi, an energy fellow at the Council on Foreign Relations. “Sometimes OPEC doesn’t make decisions, but individual countries do and then others follow.”
Abdalla Salem el-Badri, the OPEC secretary general, acknowledged the possibility of production cuts in Vienna on Wednesday. “Maybe in the coming months we will produce less,” he said.
Recently, OPEC has not revealed specific quotas for members. But the whole organization was supposed to observe a 30 million barrel-per-day ceiling, which it is now being exceeded by around 1 million barrels per day. This lack of specific targets allows the Saudis to try keeping the global system balanced by adjusting the amount of oil they sell, without the need to haggle over changes.
OPEC Leaves Production Quotas in Place
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OPEC Leaves Production Quotas in Place
