OPEC holds output steady, citing worries about world economy as it grapples with oversupply

OPEC opts to hold output steady

LUANDA, Angola — OPEC held its year-old output targets unchanged Tuesday, as the group grappled with overproduction by some in its ranks that could undercut efforts to support oil prices amid a fragile global economic recovery.

The Organization of the Petroleum Exporting Countries wrapped up its meeting Tuesday in the Angolan capital by deciding that the best plan of action was not to act. The 12-member bloc highlighted concerns about the strength of the global economic recovery, and again called on oil producers outside the group to cooperate in propping up oil markets.

The lack of action appears meant to avoid shocking an oil market in which crude prices have stayed within range of OPEC’s unofficial target of $75 a barrel for months. The relative price consistency has provided OPEC a measure of relief after oil demand and prices collapsed last year amid the world’s worst recession in over six decades.

OPEC, explaining its decision to hold output steady, said in its final statement that “it is not yet clear how strong or durable the recovery might be.” It stressed, however, that its members were ready to “respond to any developments which might place oil market stability and their interests in jeopardy.”

Oil futures edged down to nearly $73 per barrel shortly after OPEC’s decision — still within the threshold with which kingpin Saudi Arabia and other members has argued was fair for both producers and consumers.

“It is more than an anticlimax to learn that nothing has been agreed on this occasion,” said John Hall, chairman of EnergyQuote’s John Hall Associates consultancy in London. “This has been a token meeting … Any OPEC decision-making will be governed very much by economic activity and whether OPEC members can report a genuine increase in demand for their products globally.”

Earlier Tuesday, several OPEC ministers voiced satisfaction with existing prices. Ali Naimi, the oil minister from Saudi Arabia, described them as “perfect, perfect,” while Ecuador’s oil minister, Germanico Alfredo Pinto Troya, said current prices are “good for everybody, especially producers.”

While the decision to hold steady — or “rollover” production — targets was widely expected, the significance may be in that a group which has often been accused of ogling high prices without regard for the consequences has shown a strong measure of understanding for the prevailing economic worries.

After announcing a series of cuts by the end of last year aimed at curbing its supply by 4.2 million barrels per day, OPEC has resisted a similar urge in its three other meetings this year.

As prices have risen, compliance with the output targets has slipped on the part of some members, bringing the group’s total compliance level to around 60 percent.

The energy minister for the United Arab Emirates, Mohammed bin Dhaen al-Hamli, described compliance as “not good.”

“In the past we have had good compliance levels, above 90 percent. So it’s not difficult,” he said. “We need more compliance.”

Saudi Arabia’s Naimi said he would like to see it at 100 percent.

The group’s statement did reference the issue of cheating on production targets, saying that members repeated their commitment to their quotas.

But OPEC also appeared to try to shift the onus on other oil producing and exporting nations, urging them to work with the bloc to stabilize the market. OPEC said achieving a market equilibrium was “a burden” they could not shoulder alone.

It was unclear, however, why those countries — such as Russia and Mexico — would back OPEC this time when its earlier calls for similar cooperation fell largely on deaf ears and the group appeared unable to even convince its own members to stay true to their limits.

“We cannot really force the countries to adhere 100 percent,” OPEC Secretary General Abdalla Salem el-Badri told reporters.

Much like OPEC’s worst cheaters, the other non-OPEC producers have capitalized on the rebound in oil prices by adding crude to a market in which supply of oil has for over a year outstripped demand.

That imbalance threatens to undercut the gains which OPEC’s last round of cuts in 2008 helped partially engineer. It also factors directly into the broader concerns about the global economic recovery.

“The OPEC people, they follow this stuff. … They know demand is still weak,” said analyst and trader Stephen Schork. “They’ll take $75 a barrel. But given how precarious the situation is, they’d take $65 a barrel too if that would spur economic recovery in their clients.”

OPEC’s next meeting is scheduled for March 17 in Vienna. Ecuador will assume the group’s rotating presidency from Angola.