OPEC oil producers agreed on Tuesday to keep their supply curbs unchanged but may face an uphill battle to improve compliance with those restrictions if they want to drain bulging global fuel inventories.
The Organization of the Petroleum Exporting Countries that pumps about 50 percent of the world's oil exports has seen crude prices almost double since the start of the year after it sliced output when recession hit fuel demand.
OPEC is content with oil valued at $73.40 for U.S. crude on Tuesday, prices having fluctuated over the past month in the $70-$80 range that many in OPEC say they prefer.
"At between $70 and $80, everyone is happy," Saudi Oil Minister Ali al-Naimi said. "The current price is good for consumers, producers and investors."
OPEC's biggest producer, Saudi Arabia, has made clear that it does not want to risk letting fuel prices get out of hand for fear of stunting a fragile recovery in world economic growth.
But Naimi and several other ministers expressed concern at the decline in adherence with quota restrictions that has pushed up inventories in industrialized consumer nations to 60 days worth of demand.
"We expect more," Naimi said of compliance.
While Saudi and its Gulf allies Kuwait and the UAE are at or near full compliance with output cuts, Angola, Nigeria and Iran have made little or no contribution.
Some market analysts think OPEC may need to get closer to output targets if it wants to keep prices above $70 a barrel going into 2010.
"We suspect the ensuing price bias will be to the downside," said Edward Meir of MF Global.
"In the least, (market) participants may be unnerved by OPEC's continuing refusal to tighten export quotas, and in fact, given energy's bearish fundamentals, the cartel is lucky prices are not lower than they actually are," said Meir.
Stricter adherence to the self-imposed 4.2 million barrels-a-day of reductions in force throughout this year would skim inventories to levels more acceptable to producers.
Compliance with the restrictions peaked in February at about 80 percent but has since slipped to 60 percent, adding about 800,000 bpd or 3 percent to OPEC supplies over the past nine months.
Iraqi Oil Minister Hussain al-Shahristani said that by sticking to agreed targets, OPEC could mop up excess inventory.
"If the members restrict themselves to agreed levels of production that would eliminate more than more than one million barrels a day from the market," said Shahristani. "There's no need to revise the agreement, we just need to comply with it."
"Given expectations in the market for demand, which is still pretty weak, in the first part of next year they could come under pressure to do something," said Neil Atkinson of KBC Market Services from the sidelines of the meeting in Luanda.
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