Ministers: OPEC holds output steady

[December 22, 2009]  LUANDA, Angola (AP) -- Several OPEC ministers say the oil producing group has decided to hold its output targets unchanged and wants members to adhere more closely to their quotas.

Oil ministers from Angola, Algeria, the United Arab Emirates and Libya all said Tuesday the group has decided to hold steady its production quotas.

The decision was widely expected as the 12-member Organization of the Petroleum Exporting Countries has voiced comfort with current oil prices and is wary of taking a step that could shock the market and undercut the ongoing fragile global economic recovery.

"Yes, we are talking about compliance. We are calling for member compliance," said Shukri Ghanem, the head of Libya's National Oil Corp. and that country's de facto oil minister. Ghanem said there would be "no change" with quotas.

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LUANDA, Angola (AP) -- OPEC looked poised to hold its oil output quotas unchanged as it met Tuesday, with the focus instead on urging some members to stop cheating in a market where an excess of crude and a shaky economic recovery risk undercutting prices.

Several ministers from the Organization of the Petroleum Exporting Countries have voiced satisfaction with current oil prices in the mid $70s. Ali Naimi, the oil minister from group kingpin Saudi Arabia, described them as "perfect, perfect," on Tuesday, while Ecuador's oil minister, Germanico Alfredo Pinto Troya said current prices are "good for everybody, especially producers."

The apparent unwillingness of the 12-member group to adjust its output targets at its meeting in the Angolan capital reflects concerns that any such step could undermine the shaky economic recovery the world is undergoing after its worst recession in over six decades. It would also likely be counterproductive for the producer bloc where some members are already exceeding their quotas -- adding more barrels to the market even as the group has struggled to -- undercutting efforts to mop up the surplus of crude in the market.

Compliance has been a traditional nemesis for OPEC, and looks to factor high on the group's agenda Tuesday.

"Compliance is a function of sovereign rights, and sovereign rights are sovereign rights," Naimi told reporters Tuesday, adding that it was "nothing new" for some members to be overproducing.

Even so, "we'd like it to be 100 percent," said Naimi, whose country sits atop the world's largest proven reserves of crude.

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."

Adhering to quotas is crucial for OPEC, which last week said that 2009 had been one of the worst years ever for oil demand. Increased production by other big producers who are not part of the group, such as Russia, can also hurt OPEC's efforts to support prices.

Oil prices hovered Tuesday at slightly below $74 per barrel ahead of the group's meeting -- its last in a year in which they have not adjusted output targets.

Analysts had credited oil's rebound over the past year, despite shaky demand, in part to OPEC's push to comply with the series of cuts it announced late last year that sought to bring down its supply by a whopping 4.2 million barrels per day. But as prices have risen, so too has cheating by some of its poorer members -- particularly in Africa and South America.

While it has slightly revised up its demand forecast for 2010, the producer group warned that the market faces risks linked to the pace of the world's economic recovery and that it expects consumer appetite for crude to remain weak for the first half of the year.

That puts OPEC again in the challenging position at a time when demand remains uncertain.

"If they can't get compliance back in the 60 and 70s (percent), oil is going to have a tough time rallying," said James Cordier, president of Tampa, Florida-based trading firm Liberty Trading Group. "When producing nations feel demand is good ... they comply with their quotas. When they're fearful of the future, they get oil out as fast as they can. And that's what's happening."

The market situation remains challenging for OPEC.

The 11 members bound by the group's quotas -- all except for Iraq -- are supposed to be producing slightly under 25 million barrels per day. But OPEC's most recent monthly report showed members producing over 26.5 million barrels per day in November.

Compounding their problems is a possibility of increased production from non-OPEC producers who have largely shunned the bloc's calls for greater cooperation to raise prices.

Analysts say that politics may also play a factor -- at least for Saudi Arabia. The OPEC powerhouse's satisfaction with current prices, say some analysts, reflects not only its desire to see the economic recovery sustained, but also an attempt to aid its close ally the U.S. by forcing fellow group member Iran to run a deeper deficit.

Iran and the West are at loggerheads over Tehran's nuclear program, which the U.S. and others maintain is aimed at developing weapons.

"While Iran has cut spending in 2009, they are still running a deficit, and Saudi Arabia remains determined to keep them in deficit as the U.S. pursues additional U.N. Security Council sanctions" in the first quarter of 2010, Greg Priddy, an oil analyst with the Eurasia Group, wrote in a recent report.

[Associated Press; By TAREK EL-TABLAWY and ADAM SCHRECK]

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