OPEC is likely to keep its current oil production targets steady at its meeting next week, experts say, despite concerns that high crude prices threaten to put the brakes on global economic growth.
Even with prices more than $10 a barrel off their July highs and no shortage of supplies, economists concede that jittery market sentiment doesn’t leave the Organization of Petroleum Exporting Countries with much choice. Cutting output would drive prices even higher, and pumping more isn’t an option for most members already producing at maximum capacity.
“They’re not powerless. But there are some things they can do and some things they can’t,” said Jason Schenker, an economist with Charlotte, N.C.-based Wachovia Corp., who expects energy prices to moderate with slowing economic growth and predicts “no real change in output.”
“Inventories have been building, and without major hurricanes in the United States, we’re looking at energy markets likely to move lower in the fall and winter,” he told The Associated Press. “They really don’t have that much room to do much.”
Key members of the 11-nation cartel, who meet Monday in Vienna, have said they would like to see prices closer to $65 a barrel. That’s already well above the $50-per-barrel benchmark that many members long have contended is optimal.
Oil has been edging lower since light sweet crude hit a record $78.40 a barrel on July 14, two days after fighting erupted in Lebanon. It was trading at around $67 a barrel on Friday.
Global production has taken a hit from BP’s leak-prone Alaskan oil pipelines, outages in Iraq and Nigeria — where militants have attacked oil infrastructure — and concerns over Iran’s escalating nuclear standoff with the U.N. Security Council.
But though supplies remain ample, crude prices are still high, said Eshan Ul-Haq, chief analyst at PVM Oil Associates in Vienna.
'There's no scarcity'
“There’s enough oil. There’s no scarcity,” said Ul-Haq, who doubts OPEC will do anything as long as prices remain above $50.
Prices are unlikely to drop to that level this year, he added, but they could start plummeting next year if production from non-OPEC nations such as Angola, Brazil and Azerbaijan rises significantly as expected in 2007. “All this is likely to put pressure on prices,” he said.
Ahead of Monday’s meeting, Saudi Arabia — the world’s biggest oil exporter, and the only OPEC member with significant spare production capacity — signaled that the group is likely to maintain its current production quota of 28 million barrels a day. Algeria, too, has said the cartel doesn’t really have a choice.
U.S. crude inventories fell 2.2 million barrels last week to 330.6 million barrels, but stocks remain 6.2 percent above their levels a year ago — the highest since 1998 — largely because of higher refinery production, the U.S. Department of Energy said this week.
“We’re starting to see a lot of oil on the market, so supply is not the issue, and prices are coming down,” said Matthew Cordaro, an energy specialist and business professor at Long Island University in New York.
That, Cordaro said, distills OPEC’s influence to providing “moral support for the market — one way or the other.”
OPEC’s output quota, which does not include Iraq, meets about 40 percent of the world’s demand for crude.
Market susceptible to Middle East unrest
The markets are more susceptible to events in the Middle East, “being the tinder box that it is,” and to hurricanes that could damage refineries in the Western Hemisphere, he said.
Analysts said it’s probably too early to gauge the impact of a newly discovered petroleum pool beneath the Gulf of Mexico that experts say eventually could yield anywhere from 3 billion to 15 billion barrels — a find Cordaro conceded “does challenge the notion that we’re all tapped out.”
As OPEC members assess where the oil markets are heading, they’re also expected to discuss whether to appoint a new secretary-general, a mostly symbolic post now held by Nigeria.
Iran has been lobbying for the job, arguing that as the cartel’s No. 2 producer, it has a right to a top leadership slot. OPEC has shut Iran out of the position since the 1979 Islamic Revolution.