OPEC to eye economic stimulus, not just oil supply
Written on September 7, 2009
OPEC ministers meeting in Vienna this week were expected to keep supply targets intact and instead rely on hoped-for economic growth to sustain oil prices.
The oil market held around $68 a barrel on Monday after Group of 20 finance leaders said at a weekend meeting they would not end stimulus plans until recovery was well established.
Traders predicted the extended financial support would translate into higher fuel demand.
“There is a general consensus to no further cuts,” Kuwait’s oil minister told reporters before boarding a flight to Vienna.
On arrival in the Austrian capital, he also ruled out an output increase, although that was widely regarded as the least likely outcome of Wednesday’s meeting of the Organization of the Petroleum Exporting Countries.
Delegates also predicted no change.
“As long is the price is around $70, then the ministers are happy,” one delegate said.
“They might be worried about inventories, but they won’t discuss future cuts here. They can have an extraordinary meeting if they want to do that or they can talk about it in Angola in December.”
After this week, OPEC’s next scheduled talks are in Luanda at the end of the year.
STEADY ALL YEAR
OPEC has kept official output targets steady since it announced late last year a record cut of 4.2 million barrels per day from September 2008 production.
But as the oil market has recovered from a low of $32.40 in December — its weakest in nearly five years — to this year’s peak of $75 hit in August, it has reduced levels of compliance with agreed curbs from a peak of 80 percent of agreed cuts to less than 70 percent.
The lapsing discipline has contributed to an inventory build that has taken stocks to the equivalent of nearly 62 days of forward cover, according to the International Energy Agency. That is around 10 days more than OPEC views as comfortable.
Gary Ross, CEO of U.S.-based consultancy PIRA Energy, said prices would be a lot higher, more than $100, if stocks had fallen to the kind of level OPEC had wanted.
“You can’t say the price is too high. The E.U. and the U.S. aren’t saying much different in terms of what they want,” he said.
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