"Happy" OPEC to keep oil production steady

“Happy” OPEC to keep oil production steady

15/15 analysts see no change in output targets this month.

October 5, 2010 2:35 by Reuters

OPEC will agree next week to leave oil production targets unchanged, maintaining a policy that has helped keep prices within or close to its target range of $70 to $80 for more than a year, a Reuters poll showed on Tuesday.

“OPEC is happy with oil prices and they have no incentive to change anything,” said Leo Drollas, chief economist at the Centre for Global Energy Studies (CGES).

“Saudi Arabia wants oil close to $80 and although they get a little nervous when prices go higher, they can always put more oil into the market if they wish.”

All 15 oil analysts surveyed by Reuters forecast the 12-member Organization of the Petroleum Exporting Countries would roll over its current output agreement when it meets in Vienna on Oct. 14.

That will involve the 11 OPEC members with quotas — all except Iraq — pumping no more than 24.84 million barrels per day (bpd), equivalent to about 30 percent of global oil demand.

Benchmark U.S. crude oil prices were trading around $82 per barrel at 1030 GMT on Tuesday, well above the declared range of $70 to $80 that OPEC has said it wants.

“The current price range represents a level which OPEC has always described as satisfactory for both producers and consumers,” said Sintje Diek at HSH Nordbank.

“At this price level, investments in new oil production facilities still appear attractive to companies, which means future oil supply will not be adversely impacted by insufficient investment activity. At the same time, however, oil prices are not high enough to affect the fragile economic upswing.”

COMPLIANCE

Oil consumers, moreover, have little incentive at current price levels to switch to alternative fuels or dramatically reduce their energy bills.

OPEC adopted its current output policy almost two years ago after oil prices had fallen from record highs of close to $150 per barrel to below $40 as the global banking crisis pushed many economies into their deepest recession since World War II.

Initially, most OPEC members stuck closely to their targets, which cut production by 4.2 million bpd from the level OPEC was pumping in September 2008, but compliance fell gradually as economic growth picked up and prices gradually recovered.

A Reuters survey last week showed the 11 members bound by that deal met only 57 percent of their promised cuts in September, meaning they were pumping around 26.8 million bpd — almost 2 million bpd above target.

Compliance is expected to be a key topic at OPEC’s meeting and ministers may also discuss Iraq, which this week raised its estimate of proven oil reserves by a quarter.

Analysts expect Iraq to remain without an output target for at least another two years as it rebuilds after years of war.

“I expect them to say they will monitor production and seek greater compliance with targets,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas.

Christophe Barret, oil analyst at Credit Agricole, agreed:

“OPEC is happy. There will be no change.”

Reuters surveyed the following banks, consultants and brokerages Oct. 1-5: Bank of Ireland, BNP Paribas, Commerzbank, CGES, Credit Agricole, Deutsche Bank, HSH Nordbank, JBC Energy, JP Morgan, Landesbank, MF Global, Petromatrix, PFC Energy*, PVM, Societe Generale.

(Reporting by Christopher Johnson; editing by William Hardy)