The Organization of Petroleum Exporting Countries decided to keep oil production targets unchanged at its meeting in Vienna on Friday as the slowing US economy threatens to curb energy demand.The decision was “easy” to make as oil market fundamentals are “sound,” Saudi Arabia's Oil Minister Ali al-Naimi said.
The expected economic slowdown means the group's current production is sufficient to meet demand in Q1, OPEC President Chakib Khelil told a press conference.
OPEC rebuffed a request from US President George W. Bush for more oil and delayed discussion of a supply cut to bolster prices until March. Oil has slipped 9% from a January 3 record of $100.09 a barrel.
“They are very concerned about increasing output at a time when there are big question marks about demand growth in the economy,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “They have a lot of flexibility because there is another meeting a month from now.” White House spokesman Tony Fratto said: “We hope that they understand that their decisions on oil production have a real impact on the economy.”
Crude oil for March delivery sank $1.75 to $90 a barrel on the New York Mercantile Exchange on Friday morning.
Ministers from most of OPEC's 13 nations had already said last week there was no need to alter targets. The decision was expected by 90% of analysts polled by Bloomberg News.
OPEC will meet in coming months to monitor economic conditions, including its next scheduled meeting on March 5 in Vienna. A conference of producing and consuming countries is planned for April 20 in Rome.
Venezuela's Oil Minister Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari both said after Friday's Vienna meeting that the group may need to cut supply at its next gathering to prevent oil inventories becoming too high.
Bush said during a January 15 visit to Saudi Arabia that OPEC should increase production and relieve the strain of rising energy costs. The Federal Reserve lowered its benchmark interest rate two days ago by half a percentage point to 3%, the second cut in as many weeks, to prevent the US economy from sinking into a recession.
The world should be “more concerned about the economy” as there is “plenty of oil,” said OPEC's Khelil, who is also Algeria's oil minister.
Francisco Blanch, head of global commodities research at Merrill Lynch and Co, said oil consumption may not be dented that much by a slowdown in the US, where regular gasoline averaged $2.977 a gallon at the pump this week.
“Even under a case of US recession, we are going to see a very, very mild downturn in demand in the United States, if any,” Blanch said in a Bloomberg Television interview. “We have a very harsh winter going on in China ... so I think China might be demanding a fair amount of oil over the next few months.”
World oil demand will fall by 1.5 million barrels a day, or 1.7% of total consumption, in Q2 from Q1, as the end of winter in the Northern Hemisphere cuts heating fuel use, according to the International Energy Agency.
Partly for that reason, OPEC hasn't announced a supply increase in January or February since 2003, when members had to make up for production lost during a strike in Venezuela.
The collective target for 12 OPEC members remains 29.673 million barrels a day, OPEC's head of research Hasan Qabazard said. (Shanghai Daily)