VIENNA, Austria — OPEC will increase its oil production target by 1 million barrels a day later this year in a move widely viewed as more symbolic than significant, given that the cartel has been exceeding the new output limit since the beginning of the year.
The decision was a consensus of the 11 members of the group and will take effect Nov. 1, said Indonesia’s Purnomo Yusgiantoro, president of the Organization of Petroleum Exporting Countries.
“It’s a gesture of goodwill to the consumers that we want lower prices,” Algerian Oil Minister Chakib Khelil said.
OPEC will raise its self-imposed output limit for all its members, except Iraq, from 26 million barrels a day to 27 million barrels. But the cartel, which accounts for one-third of the world’s oil supply, is already producing 27.4 million barrels a day.
“It’s a PR exercise to prove to the consumer that OPEC actually likes them, “ said Leo Drollas, chief economist at the London-based Center for Global Energy Studies. “It’s not going to help the market at all.”
Crude prices in New York and London climbed to record highs earlier this summer, but have eased in recent weeks. In trading Wednesday afternoon, U.S. crude futures fell 81 cents to settle at $43.58 a barrel on the New York Mercantile Exchange. It had reached an all-time high of $48.70 on Aug. 19. In London, October Brent crude futures rose 12 cents to finish at $41.85 per barrel on the International Petroleum Exchange.
Some countries, including Nigeria and Libya, had sought an increase in the price band for its basket of crudes, currently at $22 to $28, along with the higher production targets.
Prices have long been well above the upper end of the band, which is the cartel’s preferred selling range. OPEC’s basket price, currently in the $39 a barrel range, is lower than prices in the U.S. because that market require a higher grade of product.
Purnomo said the consensus by OPEC members was to wait until a Dec. 10 meeting in Cairo, Egypt, to make a decision. He did not say why when asked.
Energy economist and industry analyst A.F. Alhajji said Libya, Nigeria and Venezuela had sought a price band increase for economic reasons.
“They don’t have spare capacity and, subsequently, higher prices mean more money for their coffers,” he said.
Qatar’s oil minister, Abdullah bin Hamad al-Attiyah, said raising the output target would result in a calmer market. “We believe that there is more oil in the market, we believe that all this production will give more stability to the market,” he said.
World demand for oil has been voracious, led in part by China’s expanding economy and continued demand in the United States. Oil prices have soared because of the extremely thin margin of spare output capacity worldwide and fears of supply disruptions around the globe.
Analysts say OPEC vastly underestimated the growth of demand this year. Now it seems the group lacks the ability to increase production quickly enough to bring prices down.
The tight market and shortage of spare production capacity means that the cartel “is not operational, really, at the moment,” Drollas said. “It’s not effective.”
On Wednesday, Venezuelan President Hugo Chavez said that his country won’t increase its oil production, citing “an excess of oil in the market.”
Venezuela, a founding OPEC member, produces more than 2.2 million barrels per day, almost a million less than two years ago, when a labor strike paralyzed production. The country’s production has been recovering but it is not expected to reach its full pre-strike capacity soon.
Purnomo said OPEC has 1.5 million barrels of spare capacity that it can put on the market when needed. “Saudi Arabia will be able to do it and some of the other Gulf countries should be able to do it,” he said.
OPEC’s decision doesn’t apply to significant oil producers like Russia and Norway, the world’s second- and third-biggest producers, who are not members of the cartel.
Purnomo urged them to follow OPEC’s lead, but Russian Oil Minister Andrey Greus didn’t commit.
“We are interested in the stability of prices and more predictability,” he said through a translator.
Thorhild Widvey, Norway’s oil minister, who will speak to OPEC this week, has said the country, which produces approximately 2.9 million barrels a day, has no spare capacity.
OPEC’s director of research, Adnan Shihab-Eldin, said he believed crude prices would be back to normal levels in the coming winter.
“Once geopolitical concerns subside, we believe that these shifts will subside,” he said. “We have to be patient, to wait.”
OPEC will meet with energy industry leaders, including oil companies and agencies, on Thursday and Friday. The cartel’s next regular meeting will be in Iran in March.
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