Higher compliance the main target for OPEC

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Wednesday, 27 May 2009

Tanker sector can not hope for more oil cargoes form OPEC’s members, but at the same time will not have to cope with less shipments. Cartel members will not cut again their daily production in the forthcoming summit in Vienna next weekend, as the current level of oil prices at $60 per barrel is more than satisfactory, in a period that world economy struggles to recover from a severe recession. The official confirmation about OPEC’s future action came yesterday by Saudi oil minister, Ali al Naimi. The most powerful cartel’s official made clear that OPEC is unlikely to cut output at its upcoming meeting as indications mounted that the oil producing bloc would resist a temptation to tighten the taps despite wanting higher crude prices. The Saudi minister also voiced concerns about global crude stockpiles, whose tenaciously high levels are being sustained by weak demand linked to the economic meltdown.
On the other hand, OPEC of course will not raise its production and this is logical while demand remains in law levels. Boosting production "will not happen until we are sure that global inventories are reduced to their normal levels," said al-Naimi, whose country is the world's largest exporter of crude. He said world crude inventories are currently at between 61 and 62 days of forward cover and the group wants to see them down to 52 or 54 days.
But, as the prices continue to rise the pressure for new cut of the production will be reduced. The weekly average oil prices of the Organization of Petroleum Exporting Countries (OPEC) rose for a forth week to 57.78 U.S. dollars per barrel last week according to official figures.
OPEC's average daily prices of crude oil even hit 58.75 dollars a barrel on the last trading day of last week, which went on with the upward trend of the international crude oil prices,
Analysts pointed out that the world economy is expected to touch ground and recover in the near future, which can boost oil prices, however, according to the latest prediction of the International Energy Agency (IEA), the world crude oil demand is expected to drop to 83.20 million barrels per day this year, which is 3 percent lower than last year.
As prices remain in acceptable levels, even the most hawkish members, as Iran or Algeria, do not push for further actions. The main target for OPEC and its members is to maintain the current official exporting quotas, something that could be proved difficult if the price of $60 per barrel or more would be a temptation for exporting countries to cheat. Algeria's oil minister on Sunday warned OPEC members' compliance to quotas slipped in April and stood at less than 80 percent and said the producer group was unlikely to cut output at its May 28 meeting.
Chakib Khelil also told Reuters he was worried about high inventories, which he predicted would begin falling as early as this summer, and forecast oil prices rising to $70 per barrel by end-2010 if the economy improves.
But under current circumstances, a new cut of oil production could send the oil prices to very high levels that can hurt the effort of developed nations to overcome the current crisis. And an new rally in oil markets is now extremely possible, as speculators have returned.