OPEC Hints at Reducing Production Next Year
By Jad Mouawad
OPEC decided Monday to keep its production unchanged for now but strongly hinted that it would consider paring output early next year to stave off a possible drop in demand next spring.
The signal was all the encouragement oil markets needed to push up prices again. On the New York Mercantile Exchange, crude oil for January delivery rose $1.14 to $60.53 a barrel. Since touching a high above $70 a barrel after Hurricane Katrina, oil prices had fallen more than $15. Recently, they were hovering below $60 a barrel. Members of the Organization of Petroleum Exporting Countries, which account for about half of the world’s oil exports, have been pumping oil at a 25-year high to make up for shortfalls in production and to meet strong global demand. The group suspended its quota system in September in response to the hurricanes in the Gulf of Mexico, which crippled America’s largest energy hub, shut down offshore production and refineries, and sent oil prices soaring. OPEC decided to meet again in seven weeks two months ahead of a previously scheduled meeting to consider cuts in its output and anticipate slower demand in the spring, when demand typically falls after the winter surge and before a pickup with the summer driving season. The meeting on Monday in Kuwait was the strongest signal to oil markets in recent months that OPEC would not allow prices to fall too much. In its final communique, OPEC said it would “take all measures considered necessary to keep market stability and maintain prices at a reasonable level.”
Roger Diwan, an analyst at PFC Energy in Washington, “It’s a bullish signal to the market.” The group said it would not extend a previous offer to sell all of its remaining two million barrels a day of spare capacity because no buyers had stepped forward with requests for more oil.
OPEC’s message is unlikely to alleviate concerns that oil markets remain vulnerable to shortfalls next year, with little spare capacity worldwide.
But privately, OPEC delegates attending the meeting here said that they were confident that demand would still be high next year and they discounted the risk of a slowdown in the second quarter. Some said they expected that a cold winter would force consuming nations to draw on their commercial stocks and preclude the need for a production cut. Many here expect prices to remain at or above $60 a barrel next year.
Most forecasts predict that the rise in oil supplies next year will outpace rising demand as high prices attract more production from non-OPEC producers. That suggests that OPEC will need to cut its output to keep prices from sliding.
Sheikh Ahmad Fahad al-Ahmad al-Sabah, the Kuwaiti oil minister and president of OPEC, defended the group’s policy, saying OPEC was doing all it could to help bring down prices from their highs. “We cannot control prices,” he said during a news conference after the meeting of representatives of OPEC’s 11 member countries. “We can only secure the supplies.”