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Last updated: December 14, 2011 12:37 pm
Opec has pulled off a show of unity after its last meeting ended in disarray, agreeing to keep its members’ oil output at current levels of about 30m barrels a day for the first half of next year.
The deal on Wednesday will go some way to allaying the concerns of oil consuming countries, who have urged the producers’ cartel to maintain supplies rather than cut them in the face of slower economic activity. Even so, analysts said oil prices were unlikely to fall significantly from the current level of about $110 a barrel. The balance of supply and demand remains tight.
Brent crude, the benchmark, tumbled $4.88 a barrel to $104.62 amid a wider sell-off in commodities ater Opec announced the deal. Brent prices hit a two-year high of $127.02 in February.
The agreement will set a cap on the cartel’s output for the first half of next year at 30m barrels a day, the cartel said in a statement after the Vienna meeting. Opec estimates that the cartel pumped about 30.3m b/d in November.
The consensus to fix a new ceiling comes after the previous Opec meeting in June ended with no formal agreement on output. Saudi Arabia, Kuwait and the United Arab Emirates unilaterally increased their output after that meeting to make up for the loss of output from Libya. Riyadh and its allies offered a compromise to Iran and other price hawks, promising “voluntary” output cuts next year as Libyan oil returned to the market to “ensure market balance and reasonable price levels”.
Abdullah al-Badri, Opec secretary general, said that Libya’s oil output had surged to 1m b/d as of “last night” and would reach its pre-war level of 1.6m b/d by late June.
A reconciliation between Saudi Arabia and Iran was evident on Wednesday at the end of the meeting. Ali Naimi, Saudi Arabia’s powerful minister – who described June’s gathering as the “worst ever”– said as he walked back to his hotel from Opec headquarters: “Am I happy? You can see I am smiling.”
The new production ceiling of 30m b/d is an important moment for the cartel, which last set an official output target at its meeting in December 2008 in Oran, Algeria. At the time, ministers agreed record production cuts and set a new target of 24.85m b/d. Opec accounts for roughly 40 per cent of global oil supplies.
Oil analysts said the deal would keep the energy market well supplied and, most likely, sustain prices around the current level of $100 a barrel. Ahead of the meeting, the cartel and the International Energy Agency, which represents the richest oil importers such as the US, Japan and Germany, largely agreed that Opec would need to produce at least 30m b/d next year to allow a rebuild of oil stocks.
Oil stocks in industrialised countries have fallen well below their five-year average due to the ongoing supply disruption in Libya, Syria and other regions. Crude oil stocks in Europe, the region most affected by Libya, have fallen to an 11-year low.
The cartel had to weigh two conflicting issues: on the bearish side, the expected downturn in demand amid the continuing eurozone debt crisis and the faster return of Libyan oil to the market; on the bullish, growing geopolitical tensions in the Middle East and North Africa and the very low level of inventories.
Rostam Ghasemi, Iranian oil minister, summarised the concerns of many Opec countries about oil demand. “The big challenge facing the oil market at the present time is coping with the tremendous uncertainty affecting world economic growth. When reviewing the market outlook for 2012 and beyond, we face a very unclear picture,” he said in his opening speech in Vienna. Iran has geld the rotating chairmanship of Opec this year.
But Mr Naimi struck a more positive note, saying earlier that the kingdom, which has boosted oil production to a 30-year high of more than 10m b/d, saw oil demand “all over” the world.
The Opec meeting is the latest big event of the oil calendar for 2011, closing a dramatic year for the industry. The oil market has had to weather the loss of supplies from Libya, the collapse of the Opec meeting in June and the release of the western countries’ strategic petroleum reserves for only the third time in history.
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