Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

OPEC Declines to Boost Crude Output

OSAKA, Japan -- The Organization of the Petroleum Exporting Countries agreed Thursday to maintain severe restraints on oil production for the fourth quarter to keep crude prices riding high, despite worries among consumer nations about the impact of high energy costs on the world economy.

Cartel cutbacks, in place since January, have combined with the threat of a U.S. war against Iraq to push benchmark U.S. crude close to $30 per barrel -- a setback for industrialized powers trying to sustain a shaky economic recovery.

"Prices are OK for producers and consumers," Saudi Oil Minister Ali al-Naimi said at a meeting in Osaka, Japan. "This is not a decision we took lightly. We had to take account of many uncertainties, including Iraq."

Producers will meet again Dec. 12 to review policy for the first quarter of next year, by which time any U.S. plans for military action may be clearer.

Even in the event of war, it seems there is no guarantee they will step in to prevent a price spike.

"OPEC intervention to correct prices will only happen when there is serious threat to supply," Abdulhafidh Zlitni, representative for price hawk Libya, said at the meeting.

"We don't know, we have to see, the price in the marketplace is inflated by the threat of war in the Middle East, and if this blows over, prices will probably come further down," OPEC president Rilwanu Lukman said.

Thursday's OPEC decision kept the heat under oil prices, U.S. crude edging higher by 18 cents to $29.66 a barrel in electronic trade by 0800 GMT. That values a basket of cartel crudes about a dollar short of the top of the group's $22-$28 target range.

An existing OPEC formula, adding more oil if prices stay above $28 for the basket, equivalent to about $30.50 for U.S. crude, for 20 consecutive trading days, could provide the trigger for more oil, said United Arab Emirates Oil Minister Obeid al-Nasseri.

With fuel demand rising ahead of the Northern Hemisphere winter and the United States pressing the case against Iraq, fuel bills may quickly come under further upward pressure.

"Oil market fundamentals will continue to strengthen over the next few weeks, but prices will also be determined by the war risk premium, and that will depend on how loud the war drums are beating," said consultant Gary Ross of New York's PIRA Energy. "At the margin the world economy is fragile enough that higher prices could have a very real impact."

Thursday's accord among the Middle East-dominated cartel came despite Saudi Arabia's misgivings about heavy leakage over production quotas.

Lukman admitted members were pumping about 1.8 million to 2 million barrels per day above official limits of 21.7 million bpd for 10 countries.

Delegates said Saudi Arabia had argued Wednesday that ministers should consider a cosmetic increase in quotas to bring official limits more closely in line with real supplies.

Riyadh is worried that the leakage undermines OPEC credibility on world markets, but ironically, said delegates, it was the prospect of higher Iraqi exports in the short-term that persuaded Saudi Arabia to go along with the majority.

Iraq this week started negotiating export contracts with Western oil majors under the United Nations oil-for-food program for the first time in two years.

Baghdad's exports, limited by only minor contracts with shady middlemen firms, now are expected to increase.

Analysts said many in OPEC also were opposed to an increase because they are pumping at, or near, capacity. Saudi, by contrast, has large volumes to spare and would rather not shed more market share to rivals like Russia, one of a crop of non-OPEC suppliers rolling out extra barrels this year.

"The countries that didn't want to increase quotas don't have spare capacity," PIRA's Ross said. "Venezuela, Indonesia and Kuwait are at full capacity and Qatar and Iran have very little extra."

Many market analysts think fourth-quarter demand growth alone could prove sufficient to send prices back above $30 a barrel.

Despite OPEC quota-cheating, production still has not been high enough for the normal stockup seen during the third quarter. Crude inventories in the United States, easily the world's biggest importer, are running about 4 percent lower than a year ago.

"They are not low enough to be of concern," said Saudi Arabia's Naimi.