Bloomberg: Saudi Arabia persuaded OPEC members to increase production for the first time in a year, seeking to reduce the record price of oil, over the objections of Iran, Qatar, Venezuela, Libya and Algeria. By Stephen Voss and Fred Pals
Sept. 12 (Bloomberg) — Saudi Arabia persuaded OPEC members to increase production for the first time in a year, seeking to reduce the record price of oil, over the objections of Iran, Qatar, Venezuela, Libya and Algeria.
Saudi Arabia, the group’s biggest exporter, wanted to boost supplies after crude gained 28 percent this year to $78 a barrel, said Iraqi Oil Minister Hussain al-Shahristani. The 500,000 barrel- a-day increase will be on top of actual production, according to Kuwait’s acting oil minister, Mohammed Abdullah al-Aleem.
As recently as last week, most ministers from the 12-member Organization of Petroleum Exporting Countries said there would be no change to quotas during meetings in Vienna that concluded yesterday. Supplies were sufficient to meet demand, the OPEC officials said.
“The Saudis are the big dogs, and they did get everyone to come around to their point of view,” Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut, said in an interview. “The Saudis have decided to step in here and play a role, but maybe they’ve got some people ticked off at them inside OPEC.”
OPEC’s decision didn’t lead to a drop in prices, which rose yesterday, drawing closer to an Aug. 1 record of $78.77 a barrel.
“It won’t be enough to quell market concerns ahead of winter,” Harry Tchilinguirian, senior oil market analyst at BNP Paribas in London, said in an interview today. “In the end this may be a little too late, and just a little.”
Crude for October delivery fell 2 cents to $78.21 a barrel on the New York Mercantile Exchange at 7:38 a.m. local time. It rose the past seven sessions, gaining $4.87, or 6.6 percent. Analysts expect the U.S. to report today crude supplies fell last week.
OPEC will now target crude production of 27.2 million barrels a day after abandoning its former quotas. The Saudi Arabian oil minister, Ali al-Naimi, didn’t comment to reporters about the world oil market or OPEC’s deliberations during the past four days.
“We think the market was a little bit tight,” Kuwait’s al- Aleem said. The move will “look after the concern of consumers,” and “help support the stability of the market.”
Twenty-three oil traders and analysts surveyed by Bloomberg News last week said they expected OPEC to leave its target unchanged.
“There wasn’t a single analyst on the street who felt that we were going to see anything other than OPEC leaving the quotas flat,” Beutel said. Prices over $80 a barrel “would exacerbate any possibility of there being a recession,” he said.
Before the decision, OPEC members including Venezuela, Algeria, Iran and Libya had said the world was adequately supplied with oil. Western officials, including the head of the International Energy Agency and U.S. Energy Secretary Samuel Bodman, had lobbied the group for more oil.
“It improves the credibility of the organization because it shows they recognize there will be more demand and are able to make the necessary increase, and to do something to avoid the market overheating,” Johannes Benigni, managing director at PVM Oil Associates GmbH, said in an interview in Vienna yesterday.
Kuwait’s al-Aleem said there was no conflict between Saudi Arabia and other members, such as Venezuela and Iran.
“It’s OPEC’s decision and OPEC came together and made a decision together,” he said.
OPEC said in a statement yesterday that while global oil inventories increased to “comfortable” levels, “ongoing tightness in the U.S. products market continues to affect the level of product stocks and prices” and that “the high-demand winter season necessitates keeping the market adequately supplied.”
Oil may fall below $70 a barrel, said John Hall, managing director of U.K.-based consultants John Hall Associates.
“This is a step in the right direction, it shows that OPEC cares about consumers as we head towards winter and the stocks are expected to decline dramatically,” he said in an interview in Vienna.
OPEC members were already pumping more than their quotas allowed. The 10 members with quotas produced 26.71 million barrels of crude a day last month, according to Bloomberg estimates. That meant they were pumping 900,000 barrels a day more than their previous target.
OPEC has previously expressed concern that a slowdown in economic growth in the U.S. may curtail world oil demand. The International Energy Agency lowered its forecast for 2008 world oil demand by 160,000 barrels a day in a monthly report today.
Algerian Oil Minister Chakib Khelil said yesterday that OPEC should be wary of repeating the “wrong decision” it took in late 1997 at a meeting in Jakarta, when it boosted output just before an Asian economic crisis curbed oil demand, leading to a price slump to $10 a barrel.