OPEC ministers signal no change in output targets
VIENNA – OPEC oil ministers signaled Wednesday that they have agreed to stick to present output targets while remaining undecided on who should fill a senior post coveted both by Saudi Arabia and arch-rival Iran.
The 12-nation cartel is pushing out more than 31 million barrels a day — over 1 million barrels more than the ceiling it has agreed on. That output is the highest in four years, when calculated over 12 months. Robust U.S. production and anemic world demand due to flagging economic growth have added to the mix, resulting in unusually high crude inventories. OPEC predicts even less demand next year.
Yet prices remain relatively high. The average cost of the group’s oil basket — a mix of grades produced by OPEC countries — has been above $100 a barrel for the last two years, a first in OPEC’s history. Brent crude, which is used to price international varieties of oil, has also been well over $100 a barrel for this year.
Such levels cover production costs for most OPEC countries with room for profits, meaning OPEC ministers at their meeting in Vienna were unlikely to see a need to cut back.
Iranian oil minister Rostam Ghasemi — whose country is losing hundreds of thousands of barrels a day in oil sales due to international embargoes over its nuclear program — said the Islamic Republic ideally sought a cut of 2 million barrels a day to the OPEC ceiling. But he added that Tehran could accept the current daily ceiling of 30 million barrels.
“The state of the market today is fine, but if OPEC does reduce its production the state will improve,” he said.
Ghasemi also played down the effects the sanctions were having on his country as an instrument of pressure to force concessions on a nuclear program some nations fear may be geared to making weapons — allegations Tehran denies.
He claimed the Iranian state had cut its financial dependence on oil income by 20 percent in the last three years. “Next year we will do the same,” he said.
United Arab Emirates Energy Minister Mohamed bin Dhaen Al Hamli said present OPEC production “is reasonable,” adding: “If the market needs more, we are happy.” Other ministers echoed his views.
A decrease in production would deal a blow to the world economy, which remains weak despite signs of a halting recovery in the United States and a bottoming out in the downturn in China. Reducing output now would spike prices, endangering the fragile recovery and further cutting back on the world’s oil consumption.
Then there is the “fiscal cliff.” The U.S. risks slipping into recession if hundreds of billions of dollars in expiring tax cuts and automatic spending reductions take effect on Jan. 1. Mideast tensions focused on Syria, Israel and the Palestinians and Iran’s nuclear program could also drive up prices, even without any OPEC cutbacks.
Some ministers suggested OPEC could rethink its stance sometime next year.
“I don’t think there is oversupply at the moment, but we tend to look in advance and over the next 12-18 months,” said Nigerian Oil Minister Diezani Alison-Madueke ahead of Wednesday’s closed meeting. “Particularly with the shale oil that is coming in from the U.S.”
There was less agreement on what could turn into a bigger problem than output — whom to settle on for the post of OPEC secretary-general. The decision is important because post represents the public face of the organization and a symbol of the cohesion the group likes to project despite persistent internal rivalries.
It will be the third time this year that the ministers try to find a successor to Abdullah Al-Badry. The affable yet authoritative Libyan has held the post for five years to make him one of OPEC’s longest serving secretary generals — and he may be extended for another year as a way of easing tense jockeying among other members for the post.
Saudi Arabia, OPEC’s top producer and de-facto decision maker, has nominated Majid El-Muneef, a senior petroleum expert and a member OPEC’s governing board. For Iran, it’s former oil minister Gholam Hossein Nozari, while Iraq has proposed ex oil minister Thamir Ghadban.
Though qualified, all are problematic options.
A choice between Iran and the Saudis would further polarize the organization. Iraq, which is vying to out-produce the Saudis in the next decade, also is considered by some members to have its own agenda instead of wanting to serve OPEC.
This leaves the choice of extending Al-Badry’s term or asking Kuwait, which will hold OPEC’s rotating presidency next year, to also act as secretary general.
Schenker, the analyst, said the issue highlights the factionalism within OPEC that it is loath to acknowledge.
“It potentially frays the group’s unity,” he said.