OPEC oil ministers on Wednesday opted to keep their output targets unchanged in a bid to keep prices at present levels and send a message of stability to energy-hungry economies struggling to emerge from recession.
Even before the formal decision, influential members of the Organization of the Petroleum Exporting Countries had said that OPEC would choose the status quo — unchanged since December 2008, at least on paper.
Back then, OPEC announced the last of a series of cuts aimed at bringing its output down by 4.2 million barrels per day — a move that helped engineer a rebound in crude prices, which had collapsed to the low $30s from a mid-2008 high of almost $150 per barrel.
Since then, however, production has crept up, with individual members cheating on their quotas to bring production by the 11 OPEC nations under output limits to about 27 million barrels a day — nearly 2 million barrels more than what was agreed on at the December 2008 meeting.
An OPEC statement paid lip service to the need to honor quotas, declaring that "member countries reiterated their commitment to their individually agreed production allocations."
In fact, however, the group appears accepting of the present level of overproduction as long as prices stay where they are — around $80 a barrel — a fact touched on by OPEC Secretary General Abdalla Salem El Badri.
"We tried to push but not that much," he said, when asked whether OPEC cheaters were pressured to cut back on their output. "The situation in the world economy and the situation in the world prices make it comfortable for everybody" to have present output maintained, El Badri said.
The daily overproduction cushion of nearly 2 million barrels in reality gives OPEC leeway it would not have were all members complying. John Hall, chairman of British-based EnergyQuote said it "allows them flexibility to increase output should demand pick up later this year" by upping the organization's production target closer to what is now actually being pumped.
It also gives OPEC room to push members harder on honoring their individual output targets, should demand flag and oversupply loom.
El Badri said the group was ready to pump more if the world demands it, putting spare OPEC capacity at a daily 6 million barrels.
Oil prices rose above $82 a barrel Wednesday after the OPEC decision. They were also supported by a report showing U.S. crude inventories growing less than expected last week and by a weaker dollar, which fell after Tuesday's comments from the U.S. Federal Reserve that it would keep a key interest rate near zero to help foster economic growth.
World oil demand is expected to rise this year due to surging economic activity in Asian countries, especially China. The International Energy Agency, which advises oil-consuming countries, predicts that the world's appetite for crude will average 86.6 million barrels a day this year, or 1.6 million barrels a day more than 2009's 86.5 million barrels.
Still, oil markets remain concerned about shaky demand in the U.S. Crude consumption there and in other top industrialized nations is expected to contract in 2010 for the fifth consecutive year.
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