OPEC announces it will extend oil output quota for three months
AP Business WriterVIENNA, Austria (AP) -- OPEC announced Wednesday that it would hold its official crude production steady for an additional three months, arguing that global supplies of oil are sufficient to meet demand.
The Organization of Petroleum Exporting Countries is satisfied with current oil prices and has decided that it can best ensure they stay firm by not increasing output at this time. OPEC plans to meet again in September to reassess market conditions and, if necessary, adjust its production then.
The announcement came after delegates for the 11-member group held formal talks about market conditions.
"Right now the market is in a good balance," said Saudi Arabian Oil Minister Ali Naimi, speaking to reporters before the meeting began at OPEC headquarters in the Austrian capital.
"There is no need for additional supply. The price is reasonable. Supply is adequate. Demand is OK," Naimi said.
OPEC pumps about a third of the world's crude, and its production policy can have a profound impact on the prices consumers pay to drive their cars and heat their homes. OPEC members made deep cuts in production last year in an effort to buoy sinking oil prices, but markets have rebounded since bottoming out after the Sept. 11 terror attacks.
"Much of the credit for this improvement must go to our organization, whose actions have helped prices return to levels which, in recent years, have won much acceptance among producers and consumers alike," OPEC president Rilwanu Lukman told delegates in an opening address.
OPEC said it would hold its output quota steady at 21.7 million barrels a day until the end of September.
The cartel's decision came as no surprise. However, the outlook for oil demand during the second half of the year is uncertain, and OPEC is likely to have a harder time determining output policy when it meets again on Sept. 18.
"They want to see really clear, unambiguous signs that the market is tightening, and when they do, they'll increase production. They're being cautious," said Raad Alkadiri, an analyst with The Petroleum Finance Co., a consultancy based in Washington.
OPEC has succeeded in recent months in maintaining its desired mid-$20 a barrel price for crude. Stirrings of an economic recovery in the United States, together with political tensions in the Middle East -- home to most of OPEC's member countries, have helped lift oil prices by more than a third since December.
Contracts of North Sea Brent crude for August delivery were trading at $24.96 a barrel in London, down 24 cents from Tuesday's close. August contracts of U.S. light, sweet crude were 7 cents lower, at $26.25 a barrel in trading in New York.
"I don't think $25 oil is an issue for the world economy," Alkadiri said.
Other analysts disagree. Leo Drollas, chief economist of the London-based Center for Global Energy Studies, warned that OPEC's success in achieving its target price could prove self-defeating.
"In reality, they're digging a hole for themselves without knowing they're digging it," he said.
Drollas argued that an oil price of $25 a barrel would impede future growth in the demand for crude while at the same time make it profitable for non-OPEC producers such as Russia to pump more of their own oil. In the end, he said, OPEC would lose more market share to these independent producers.
On another matter, OPEC announced that Venezuela's oil minister, Alvaro Silva, would serve as the group's new secretary-general. Silva takes over from his compatriot Ali Rodriguez, who has stepped down to head Venezuela's state-run oil company, Petroleos de Venezuela SA.
Silva's selection appeared to be largely political. OPEC hopes that by appointing him to replace Rodriguez it can persuade Venezuela to adhere to OPEC's production strategy.
Venezuela, a major supplier of oil to the United States, is strapped for cash and mired in political uncertainty since a failed coup in April against its president, Hugo Chavez. It is eager to boost its revenues, and oil is its most valuable export.
Venezuela already is busting its production quota, but so too are many other OPEC members -- by a total of 1.4 million barrels a day, analysts say.
The glaring exception to this pattern is Iraq, whose exports plunged last month when buyers refused to pay illegal surcharges that it levied on its crude. If Iraq can overcome its pricing dispute with the United Nations, which regulates its exports, it could come roaring back as OPEC's third-largest supplier.
As so often in the past, Iraq's unpredictability would then present a serious challenge to OPEC strategists when they try to chart a course later this year.