OPEC’s decision to keep its daily oil output at 30 million barrels is an attempt by the cartel to legitimize its over-production and help to keep prices high amid economic strains, analysts said.
“What they did was to ratify their over-production. They legitimized it,” independent oil analyst John Hall told AFP following Wednesday’s meeting of the Organization of Petroleum Exporting Countries in Vienna.
OPEC, whose dozen members together pump about one third of the world’s oil supply, agreed to maintain current oil production of 30 million barrels per day (mbpd), citing an uncertain outlook for world energy demand.
Its decision came after the International Energy Agency (IEA) had on Tuesday reported that OPEC produced 30.68 mbpd last month as Saudi Arabia and Kuwait pumped extra crude despite Libya working hard to return to pre-war output levels.
OPEC has also been producing far above its official output quota of 24.84 mbpd, which does not include output from Iraq due to the country’s unrest, as members look to benefit from high oil prices.
Excluding Iraq, the IEA estimates that the cartel’s other 11 member nations together pumped 27.97 mbpd of oil in November, still above OPEC’s official quota.
Hall said OPEC could now decide to ditch its quota system and stick to its new target measure.
“I think they will leave the quota system ... because it hasn’t worked and trying to impose it is not going to work.”
OPEC Secretary General Abdullah al-Badri said on Wednesday that he hoped the cartel would reassess the three-year-old official quota of 24.84 mbpd in 2012.
“We will review this number I hope when Libya comes back to full production in June.”
Al-Badri said Libya was currently producing one million barrels of oil per day and that the north African OPEC member should reach its pre-war output of 1.6 mbpd by the second quarter of 2012.
“The (OPEC) agreement to leave production levels unchanged represents a limitation on future production, and allows for the accommodation of increases in Libyan oil supply that is likely to be countered by reductions in production from Saudi Arabia and potentially other OPEC members,” said Jason Schenker, head of the Prestige Economics consultancy.
Andrey Kryuchenkov, an analyst at Russian financial group VTB Capital, described OPEC’s official quota as “outdated” and said Wednesday’s output decision was an attempt by some members “to protect current (oil) prices.”
World oil prices slumped on Wednesday as the euro tumbled close to a one-year dollar low on the back of the eurozone debt crisis but Brent crude remained above the $100-a-barrel level deemed acceptable by OPEC’s members.
New York’s main contract, WTI light sweet crude for January deliver, dropped $5.19 dollars from Tuesday’s close to end at $94.95 a barrel.
In London, Brent North Sea crude for January dived $4.48 to $105.02 a barrel.
“OPEC has heeded the market signs that downside risks to oil prices are rising,” said Schenker.
“The introduction of a ceiling is likely to have some modestly bullish price impact. Although geopolitical risks remain in play, the biggest risks right now stem from the deceleration of global growth.”
OPEC meets periodically to set production levels, hoping that its decisions result in fair oil prices for consumers and its dozen members, which include Algeria, Iran and Saudi Arabia, which is OPEC’s biggest producer.
Ahead of the meeting, OPEC hawks Venezuela and Iran called on OPEC’s Gulf members to cut back on the extra output to help keep oil prices high.
But IEA chief economist Fatih Birol called on other OPEC members to keep up with Saudi’s above-quota crude production to help push down prices and in turn aid global economic recovery.
Speaking in Singapore hours before the OPEC meeting, Birol said current oil prices posed “a major risk for the economic recovery worldwide.” The IEA represents major oil consuming nations.
Despite a drop in oil demand growth, prices remain high thanks to geopolitical unrest in the oil-rich Middle East, and especially in OPEC’s second biggest producer Iran.
The IEA reported on Tuesday that the eurozone debt crisis was hitting oil demand growth while OPEC lowered slightly its own forecast for 2012.