OPEC keeps oil output target on hold, predicts low prices
OPEC decided to keep its oil output target on hold Friday and predicted prices would remain low for the foreseeable future – good news for both for oil-hungry international industries and consumers at the gas pump.
The cartel said its output level would remain at 30 million barrels a day despite the fact that prices were still low compared with a year ago.
It left it to member states to restrain any overproduction, an acknowledgement of the cartel's inability to enforce its own limits as it struggles to control world supply and prices.
With non-OPEC oil producing countries ready to ramp up production if prices go much above present levels, OPEC's secretary general said the cost of crude will stay relatively low for a while.
"The reality now is that we cannot have these US$100 (prices) anymore," Abdullah al-Badri told reporters.
The international price of crude was down US$1.62 at US $62.10 after Friday's announcement, having traded above US$115 a barrel in 2014.
While the Organisation of the Petroleum Exporting Countries accounts for over a third of the world's oil, its power to determine supply and demand has been steadily eroding as outsiders capture large shares of the market. It gave up imposing quotas on individual members four years ago after these were consistently ignored.
That has led to an overhang in recent months of more than one million barrels a day of OPEC production beyond the target. But the likelihood of continued overproduction persists.
OPEC powerhouse Saudi Arabia is fighting to keep market share against US shale oil, Iran plans to increase production in anticipation of an end to sanctions that have crimped its crude exports and other countries are trying to compensate for low prices by selling more.
"OPEC realises ... that it is now in a highly competitive market, in which its own members will compete against each other and collectively against non-OPEC producers, and in particular shale producers," said John Hall of Alfa Energy in London.
Announcing the decision to keep the present target, an OPEC statement urged members "to adhere to it". But al-Badri, the secretary general, acknowledged that, as in the past, countries had only been assigned "indicators" – not quotas – in attempts to hew to the target.
In contrast, Saudi and Iranian comments Friday reflected the countries' determination to produce what they decide.
"Production policy is a sovereign right," Naimi told reporters.
Iranian Petroleum Minister Bijar Namdar Zangeneh, meanwhile, advised OPEC to make room for increased output from his country as early as the end of the month. That's the target date for a deal between Tehran and six world powers envisaging an end to sanctions on the Islamic Republic in exchange for curbs on its nuclear programme.
Iran hopes to ramp up production by up to one million barrels a day within a year once sanctions are gone, and Zangeneh said his country doesn't "need any decision from the OPEC side to return to the market, because it's our right”.
OPEC powerhouse Saudi Arabia and their Gulf allies are best set to continue all-out producing, even though they, like others, are selling at a loss.
But they can afford to do so.
The Saudi sovereign wealth fund stands at over US$700 billion and the coffers of the other Gulf nations are also well stocked. The Saudis, who effectively set OPEC policy, were the prime drivers in the decision in November to keep the 30 million barrel-a day target, the seventh time in three years that the group opted for the status quo.
The less well-off among OPEC states are hurting. Among them is Algeria, which has long depended on high oil and gas prices to operate an extensive welfare state and has been harshly hit by the shale boom, which generates the same light blend that it sells. For Venezuela, where crude accounts for 95 per cent of all exports, the price slump has hugely exacerbated that country's economic hardship – the country needs prices above US$120 a barrel just to break even. And Nigeria was forced to trim its 2015 budget by 12 per cent because of low crude prices. Oil makes up 75 per cent of its exports.
Still even OPEC's poorer nations know that past OPEC remedies of cutting production to drive up prices will no longer work, with the growing clout wielded by non-OPEC players.
Al-Badri on Friday defended the decision to maintain the production ceiling in hopes of defending market share despite plunging prices as "a decision of both the rich and the poor”.