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OPEC to Hold Oil Output Steady as Turmoil Rocks Some Member States OPEC to Hold Oil Output Steady as Turmoil Rocks Some Member States
(3 months later)
LONDON — OPEC agreed on Wednesday to keep its petroleum production target at 30 million barrels a day for the rest of the year, a decision intended to calm global concerns about the supply and price of oil, despite increasing geopolitical tensions in some of the main supplier countries. LONDON — OPEC agreed on Wednesday to keep its petroleum production target at 30 million barrels a day for the rest of the year, a decision intended to calm global concerns about the supply and price of oil, despite increasing geopolitical tensions in some of the main supplier countries.
The takeover of Iraq’s second-largest city, Mosul, on Tuesday by Sunni militants who crossed the border from Syria added to the uncertainties as OPEC oil ministers assembled on Wednesday in Vienna.The takeover of Iraq’s second-largest city, Mosul, on Tuesday by Sunni militants who crossed the border from Syria added to the uncertainties as OPEC oil ministers assembled on Wednesday in Vienna.
The unrest made it all the more crucial that the cartel’s de facto leader, Saudi Arabia, signal that it would continue to play a stabilizing role in the oil market and that current quotas and prices were satisfactory to the country, the biggest producer of OPEC’s 12 members.The unrest made it all the more crucial that the cartel’s de facto leader, Saudi Arabia, signal that it would continue to play a stabilizing role in the oil market and that current quotas and prices were satisfactory to the country, the biggest producer of OPEC’s 12 members.
“Supply is good; demand is good; the price is good,” the Saudi oil minister, Ali al-Naimi, told reporters before the meeting.“Supply is good; demand is good; the price is good,” the Saudi oil minister, Ali al-Naimi, told reporters before the meeting.
Prices for Brent crude, an oil benchmark, rose about 40 cents a barrel to about $110 in trading on Wednesday.Prices for Brent crude, an oil benchmark, rose about 40 cents a barrel to about $110 in trading on Wednesday.
The Persian Gulf states have so far largely weathered the turmoil in the Middle East and are producing oil unhindered. That is in contrast, though, to a range of problems curbing production in several OPEC states.The Persian Gulf states have so far largely weathered the turmoil in the Middle East and are producing oil unhindered. That is in contrast, though, to a range of problems curbing production in several OPEC states.
The worst off is Libya, where militias are holding oil production for ransom and are practically cutting off oil exports.The worst off is Libya, where militias are holding oil production for ransom and are practically cutting off oil exports.
Nigerian production is plagued by several ills, ranging from political turbulence to theft.Nigerian production is plagued by several ills, ranging from political turbulence to theft.
Iraq had been increasing output rapidly and has surpassed Iran, whose industry is hobbled by sanctions, to become the second-largest OPEC producer after Saudi Arabia. But Iraq is now something of a question mark given the recent wave of violence in the country, in which the government has lost control of Mosul as well as facilities in Baiji, the important refining town about 100 miles south of Mosul, to Sunni Muslim fighters.Iraq had been increasing output rapidly and has surpassed Iran, whose industry is hobbled by sanctions, to become the second-largest OPEC producer after Saudi Arabia. But Iraq is now something of a question mark given the recent wave of violence in the country, in which the government has lost control of Mosul as well as facilities in Baiji, the important refining town about 100 miles south of Mosul, to Sunni Muslim fighters.
Although the fighting in Iraq is not near the main oil-producing areas in the south of the country, the concern in the markets is that the growing disorder will spread, eventually threatening oil exports. The instability may also slow or reverse Iraq’s output growth by discouraging investment.Although the fighting in Iraq is not near the main oil-producing areas in the south of the country, the concern in the markets is that the growing disorder will spread, eventually threatening oil exports. The instability may also slow or reverse Iraq’s output growth by discouraging investment.
Production in the northern part of the country, which accounts for a small part of Iraqi output, would also most likely be reduced if the Baiji refinery was shut down, according to Richard Mallinson, an analyst at Energy Aspects, a London research firm.Production in the northern part of the country, which accounts for a small part of Iraqi output, would also most likely be reduced if the Baiji refinery was shut down, according to Richard Mallinson, an analyst at Energy Aspects, a London research firm.
Those problems were a reason that market conditions were quite different from those that OPEC members faced in their last few meetings.Those problems were a reason that market conditions were quite different from those that OPEC members faced in their last few meetings.
For a couple of years, the talk among analysts and traders had been about an oversupply of oil, production increases in the United States and, as a result, the weakening of OPEC.For a couple of years, the talk among analysts and traders had been about an oversupply of oil, production increases in the United States and, as a result, the weakening of OPEC.
But because of the political unrest’s curbing output in several countries, the focus is once again on Saudi Arabia and by how much it might need to increase supplies.But because of the political unrest’s curbing output in several countries, the focus is once again on Saudi Arabia and by how much it might need to increase supplies.
“Speculation that the market may need significantly more oil from Saudi Arabia is a complete turnaround from the last few meetings, where all the talk was of a looming glut,” Seth M. Kleinman, an analyst at Citigroup in London, wrote in a note to clients on Tuesday.“Speculation that the market may need significantly more oil from Saudi Arabia is a complete turnaround from the last few meetings, where all the talk was of a looming glut,” Seth M. Kleinman, an analyst at Citigroup in London, wrote in a note to clients on Tuesday.
To make up for shortfalls from countries like Iran and Libya, Saudi Arabia is likely to bolster production this summer to well over 10 million barrels a day, from 9.7 million barrels a day in May, according to Bhushan Bahree, an analyst at IHS Energy, who was observing the meeting.To make up for shortfalls from countries like Iran and Libya, Saudi Arabia is likely to bolster production this summer to well over 10 million barrels a day, from 9.7 million barrels a day in May, according to Bhushan Bahree, an analyst at IHS Energy, who was observing the meeting.
Under the informal leadership of Mr. Naimi, the organization no longer assigns output quotas to individual countries, instead maintaining the loose output target of 30 million barrels a day.Under the informal leadership of Mr. Naimi, the organization no longer assigns output quotas to individual countries, instead maintaining the loose output target of 30 million barrels a day.
Mr. Bahree noted that a Saudi increase to more than 10 million barrels a day would erode its closely watched buffer of unused or spare capacity to razor-thin margins of around two million barrels a day. The country says it can produce up to 12.5 million barrels a day in extreme circumstances.Mr. Bahree noted that a Saudi increase to more than 10 million barrels a day would erode its closely watched buffer of unused or spare capacity to razor-thin margins of around two million barrels a day. The country says it can produce up to 12.5 million barrels a day in extreme circumstances.
“This leaves spare capacity in a precarious condition,” Mr. Bahree said, adding that further shortfalls among OPEC members like Nigeria or Venezuela, both real possibilities, might add to nervousness in the markets.“This leaves spare capacity in a precarious condition,” Mr. Bahree said, adding that further shortfalls among OPEC members like Nigeria or Venezuela, both real possibilities, might add to nervousness in the markets.
“Prices could rise on concerns about further supply disruptions in key oil-producing countries and when the spare production capacity cushion in Saudi Arabia shrinks,” he said. “Much will depend, of course, on how much increased supply is needed from the kingdom.”“Prices could rise on concerns about further supply disruptions in key oil-producing countries and when the spare production capacity cushion in Saudi Arabia shrinks,” he said. “Much will depend, of course, on how much increased supply is needed from the kingdom.”
When spare capacity falls to low levels, traders become edgy, worrying about, among other things, whether the Saudis can indeed produce the 12.5 million barrels a day they say is within their capability.When spare capacity falls to low levels, traders become edgy, worrying about, among other things, whether the Saudis can indeed produce the 12.5 million barrels a day they say is within their capability.
During the summer, the Saudis, who are short of natural gas, also burn several hundred thousand barrels a day of crude oil to generate electricity to meet high demand for air-conditioning, which cuts into their exports.During the summer, the Saudis, who are short of natural gas, also burn several hundred thousand barrels a day of crude oil to generate electricity to meet high demand for air-conditioning, which cuts into their exports.
How much the Saudis will increase production by will not be determined by OPEC in Vienna but in Riyadh, their capital, possibly in consultation with the country’s allies in the Gulf, like Kuwait and the United Arab Emirates.How much the Saudis will increase production by will not be determined by OPEC in Vienna but in Riyadh, their capital, possibly in consultation with the country’s allies in the Gulf, like Kuwait and the United Arab Emirates.
The flexible system of not assigning output quotas to individual countries allows some members of OPEC, particularly Saudi Arabia, to increase output to make up for shortfalls from members like Venezuela without protracted political battles over reassigning quotas.The flexible system of not assigning output quotas to individual countries allows some members of OPEC, particularly Saudi Arabia, to increase output to make up for shortfalls from members like Venezuela without protracted political battles over reassigning quotas.
This arrangement has worked well, especially for the Gulf countries. With the Saudis continually raising production when needed and then cutting back when customers are less thirsty, prices have been stable. Prices per barrel have averaged about $108 this year, compared with $109 in 2013 and $112 in 2012.This arrangement has worked well, especially for the Gulf countries. With the Saudis continually raising production when needed and then cutting back when customers are less thirsty, prices have been stable. Prices per barrel have averaged about $108 this year, compared with $109 in 2013 and $112 in 2012.
During this period, Saudi Arabia, Kuwait and the United Arab Emirates have substantially increased their market share at the expense of the rest of OPEC.During this period, Saudi Arabia, Kuwait and the United Arab Emirates have substantially increased their market share at the expense of the rest of OPEC.
Away from the opulent hotels of Vienna, where OPEC delegations sip coffee and chat with colleagues, the organization is divided in terms of the circumstances in its member countries.Away from the opulent hotels of Vienna, where OPEC delegations sip coffee and chat with colleagues, the organization is divided in terms of the circumstances in its member countries.
Attention in the oil industry has also focused more recently on the United States, which has increased its production after a long decline through exploitation of so-called tight oil from shale rock.Attention in the oil industry has also focused more recently on the United States, which has increased its production after a long decline through exploitation of so-called tight oil from shale rock.
But the United States, which does not export crude oil, can do little to make up for the drops around the world.But the United States, which does not export crude oil, can do little to make up for the drops around the world.
Only Saudi Arabia and to a certain extent its allies Kuwait and the United Arab Emirates have the ability to add and subtract oil supplies from the world market at will.Only Saudi Arabia and to a certain extent its allies Kuwait and the United Arab Emirates have the ability to add and subtract oil supplies from the world market at will.