The Organisation of the Petroleum Exporting Countries will try to calm a nervous oil market this week by pledging that it is prepared to meet customer demand by continuing to pump oil above its official quota limits in an effort to cool oil prices, which are trading near record nominal levels of $55 a barrel.
Opec is unlikely to officially sanction members to pump oil above the prevailing official limit of 27m barrels a day, but will agree informally to pursue this action and agree to have another meeting this spring to take further action.
“Opec is not expected at its next meeting to reduce current production levels to balance supply and demand in the second quarter,” Mohamed al-Hamli, the United Arab Emirates oil minister said on Sunday.
“The decision may be to maintain current production levels with the aim of calming the market,” said Mr al-Hamli. US benchmark crude futures closed at $54.43 a barrel on Friday.
Analysts estimate the cartel reversed last month much of the production cut it implemented in January as prices rose above the key level of $50.
“There is a worry (within Opec) about $50,” said an Opec official.
Although, the Opec quota is expected to remain unchanged, oil traders are unsure whether this will be the final decision as Saudi Arabia, the lynchpin of the cartel, has yet to make its position clear. Ali Naimi, the Saudi Arabian oil minister, is due to arrive on Tuesday for the meeting.
Venezuela, the cartel’s third largest producer, has said it is against any increase in the official limit, which indicates that there may be discussions behind the scenes about an increase in the Opec quota.
In the first Opec meeting in Iran since the Islamic revolution in 1979, the Opec Secretariat is expected to inform ministers that it will increase its global oil demand forecast by 200,000 b/d to a net increase of 1.9m b/d for this year, a more bullish forecast than the International Energy Agency, the energy watchdog for industrial countries, which raised its 2005 global oil demand forecast to 1.8m b/d on Friday.
Opec is estimated to be producing about 29.5m b/d in March, an increase of about 400,000 b/d since January, with Iraq, the only Opec member not subject to quotas, adding about a quarter of this increase. This indicates that the other 10 Opec members are producing about 27.65m b/d or about 650,000 above the self imposed limit.
“On the demand side, the risk is on the upside, but the risk is on the downside for non-Opec supply,” said the Opec official. He said it was more likely that demand would have to be revised upwards before non-Opec supply forecasts are trimmed.
Opec ministers are also expected to discuss at Wednesday’s meeting long-term issues that affect the oil market, such as an acceleration in Opec plans to expand oil production capacity, as well as the composition of a new Opec price basket, which is a reference price for Opec exports, as well as the need for a new price band following the suspension of the $22-$28 band at the last meeting in January.
The discussion on expanding Opec capacity echoes the position of the International Monetary Fund, which is to announce next month that Opec double its existing spare production capacity, which is estimated at about 1.5m b/d. Chakib Khalil, Algeria’s minister for energy and mines, said over the weekend that Opec has reached its production limit, and trying to stretch output by 1m b/d would not lower oil prices.
