Analysts: OPEC Will Leave Oil Production Quotas Unchanged
(image: livetradingnews.com)
OPEC members will meet in Vienna on March 17, and most observers believe that they will decide to hold oil production quotas at their current levels, Reuters reported on Monday. The news service surveyed 14 financial institutions and reported unanimous consent among them that OPEC will not raise quotas at the Vienna meeting. Eight of the 14 respondents, however, predicted that quota increases are likely at some point this year.
OPEC last adjusted its quotas in December of 2008, when it responded to plummeting oil prices with a sizable 4.2 million-barrel-per-day reduction. Apparently, the action worked. Crude oil prices have been rising steadily since then and have recently stayed in the range between $70 and $80 per barrel that the Saudi oil minister in December called “perfect.” OPEC’s contentment with current prices is no secret, and is the most important factor that will keep production targets steady after the March 17 meeting, as Mike Wittner of Societe Generale explained to Reuters:
Don’t mess with success. The most important drivers for OPEC decision-making are prices and they are happy with them. So why would they want to change anything?
Although current quotas are serving members of OPEC well, it’s clear that not all members are observing them. Reuters reported that OPEC supply levels hit a 14-month high in February, and that at least four member nations were producing well beyond agreed-upon levels. With recession still gripping many nations around the world, cash-strapped governments are looking to increase oil revenue by “cheating” on OPEC targets. One such country, Nigeria, will likely push for an increase in its individual quota as waning violence in the oil-rich Niger Delta has allowed the nation to up its production in recent months.
As for the possibility of quota increases later this year, the deciding factor will be the global economic recovery. If economic conditions improve, global demand for crude oil will recover and OPEC will likely boost its output to meet that demand and help prevent the economic hindrance of spiking prices.
In short, on March 17 and for the rest of the year, OPEC will likely do whatever it takes to keep oil prices right where they are (the price of a barrel of crude stood at $81.56 a barrel as of this writing). Consumers of heating oil and other petroleum products, long accustomed to heaping blame on the cartel for rising prices, may have to get used to the idea of OPEC acting to prevent prices from going up.
