OPEC Maintains Production Targets
At a meeting on Tuesday, the Organization of Petroleum Exporting Countries (OPEC) decided to maintain its production targets for the coming year, a sign that prices are high enough to ensure revenue but not disrupt economic recovery, according to The New York Times. Most of the nations belonging to OPEC—chief among them Saudi Arabia—appeared happy with current oil prices; but other countries expressed concern over the fact that certain OPEC members (like Nigeria) have been exceeding production targets and thereby threatening to reduce prices.
Last year OPEC cut production by 4.2 million barrels a day in order to counteract slipping demand caused by the economic downturn. The maneuver worked; oil prices that had tumbled to as low as $33 a barrel a year ago recovered to $80 this fall. Since then, prices have slid back down to $70 a barrel, in large part because Nigeria and Qatar have ramped up production in recent months while American and European demand has remained weak.
As Nigeria and Qatar have demonstrated, not every country in OPEC is sticking to the prescribed targets. OPEC’s output has been creeping up in recent months; at the moment it is 1.8 million barrels a day above the output target of 24.8 million barrels. “Compliance will continue to deteriorate, as will price,” said Lawrence J. Goldstein, a director of the Energy Policy Research Foundation. “Almost every country that can violate the quota is doing so.”
The price of oil has also been affected by recent geopolitical events. Last week, militants threatened oil supplies in Iraq and Nigeria, two of the world’s most beleaguered crude producers. Crude prices rose only 70 cents, however, to end the week at a modest $73.36 a barrel, a sign that the oil sector’s growing capacity to shrug off sudden losses in production will, at least for the moment, keep crude prices stable.
OPEC has said that while demand for oil has begun to recover, overall demand will likely remain soft through June 2010. “It is not yet clear how strong or durable the recovery might be,” OPEC said at the close of the meeting on Tuesday. If demand remains weak, OPEC will probably keep production targets low, thereby keeping prices up. However, if member-countries like Nigeria and Qatar continue to exceed production targets, heating oil customers might see prices dip.