OPEC chief calls prices comfortable, says quota change depends on circumstances

OPEC chief says oil prices ‘comfortable’

VIENNA — OPEC is “comfortable” with current oil prices and does not want to “rock the boat” as the world recovers from its worst recession in decades, the group’s secretary general said Tuesday, while acknowledging that the group faces abundant challenges in a rapidly changing market.

The assurance by Abdalla El-Badri reflects the sense of caution that the Organization of the Petroleum Exporting Countries as it looks to balance an oil market still feeling the effects of the global economic meltdown.

But they take on a new twist as the 12-nation group marked its 50th anniversary — offering signs that the producer bloc is weighing more factors than merely the spot price of crude, currently at around $77 per barrel. One such factor is the health of the broader global economy, which could be hurt by sudden rises in oil prices.

“At this time, we see the world recovery is … not really clear yet” in some regions, El-Badri said at a news conference marking the birthday. “We don’t want to see a double-dip recession which … would affect, negatively, almost everybody.”

El-Badri also told reporters that a change both in prices and quotas this year depends on “circumstances.” But he declined to comment directly on what OPEC members would do at their meeting a month from now. The group has left its output quotas unchanged since December 2008.

His remarks were the latest indication that the group, which supplies about 35 percent of the world’s crude oil, was clearly focused on more than just ways to maximize revenues from oil sales. It’s a shift that, analysts say, points to OPEC’s maturing since five nations decided on Sept. 14, 1960, to work together to protect and capitalize on their chief resource: oil.

For a group that was for years used to a market driven by supply and demand, the game has also changed. The use of oil futures as a financial instrument has undercut the old supply-demand mechanism, meaning that OPEC’s ability to control prices through production has, at the very least, been affected in ways that weren’t present a decade earlier.

As a result, members have called for greater regulation of the futures market to avert spikes such as oil’s rally to nearly $150 per barrell in mid-2008 before prices collapsed to about $30 per barrel just months later.

“We have to watch out and we have to adapt to the changes,” El-Badri said.

Looking forward, the Libyan national referenced possible other hurdles faced by group.

“OPEC will face a changing world — changing in technology, changing in environment, and changing in the market behavior itself,” El-Badri said. “OPEC must be ready for these new changes in the world.”

It could be a rough ride, with analysts saying the bloc faces not only a push for a greater shift to clean and renewable energy sources, but also expected new production from Iraq and its age-old enemy — its own inability to consistently act in unison and to comply with its decisions.

Olivier Jakob, managing director of consultancy Petromatrix in Zug, Switzerland, likens the group to an oil tanker.

“It takes a lot of time to change the direction of a (tanker) and it’s the same with OPEC. They’ve been slow to act, or react, and I think that’s always going to be the problem.”

One key stumbling block is how OPEC will reintegrate Iraq into its quota system. The Arab producer, which sits atop 115 billion barrels of crude, is hoping to ramp out output to 12 million barrels per day in about a decade.

Analysts note that level may be overly optimistic in that timeframe, but it’s clear that even half of that new production could have a major impact on oil prices if the current oversupply of crude in the market continues.

OPEC’s challenge lies in the fact that its ability to manage that extra supply is tied to other members reducing their own output. But given that the majority of the organization’s members rely overwhelmingly on crude sales for their government revenues, the inclination would be — as it has been in the past — to cheat on quotas to capitalize on the prices.

Such a scenario would add pressure to prices, potentially driving them down and making it more difficult for OPEC to sustain the $75 per barrel level which group members argue is fair for both producer and consumer nations.

While OPEC ostensibly has a unified goal of providing secure and steady supply, its members’ competing challenges and interests are unlikely to ease any time soon.

Iran, for example, is desperate to keep oil flowing as it struggles with the impact of sanctions over its nuclear program. But with little in the way of foreign investment, it must rely on its own resources to develop its oil sector. Officials there have said the country needs to invest about $200 billion in the next five years in its oil industry.

El-Badri appeared confident his group will keep going strong.

“Remember that this organization is the only organization from the Third World that has been able to survive for 50 years — and I hope it will survive for the next 50 years,” he said.

El-Tablawy reported from Cairo.