OPEC decided Monday to keep its crude-oil production steady at record levels for now, and to meet next month to consider reducing output — a strategy meant to keep markets calm but prices firm.
The decision by oil ministers of the 11-nation Organization of Petroleum Exporting Countries appeared to reflect a recognition that oil prices may have peaked. But analysts cautioned that any near-term downward trend would be limited and gradual, stopping well above the cost of crude before it began to climb about two years ago.
Markets appeared unimpressed and driven more by fears of a colder-than-normal winter in the Northern Hemisphere and concerns about supplies lost by Sunday’s massive explosions at an oil terminal north of London.
Light sweet crude for January delivery rose 96 cents to $60.35 a barrel in midday trading on the New York Mercantile Exchange. January Brent crude at London’s ICE Futures exchange rose 51 cents to $57.82 a barrel.
Even before OPEC’s meeting, Saudi Oil Minister Ali Naimi said the recent rebound in crude prices was driven not by shortages, but by cold weather in the United States and a corresponding spike in natural gas prices.
The decision to keep production ceilings in place was expected, as was agreement to convene to review production ceilings in Vienna on Jan. 31.
Most ministers had warned ahead of Monday’s meeting that OPEC could scale back output for mid-2006, after the high-demand heating season has ended and before the summer vacation driving period starts in the United States, OPEC’s biggest customer.
OPEC’s 10 active members, excluding Iraq, have a self-imposed 28 million barrel-a-day official quota, the highest in the group’s history.
But most members are pumping above their limits, and with Iraq included are churning out more than 30 million barrels of crude a day — meeting over a third of world needs and strong demand from the United States, China, India and other nations. Without Iraq, which is exempted from quotas to allow it to rebuild, OPEC is producing about 300,000 barrels a day over quota.
OPEC members also said they would adhere to the official production ceiling but several oil ministers refused to characterize that as a reduction.
Still, analysts said the mention of the need to keep to quotas constituted an indirect call to marginally reduce output even before the January meeting. They said it reflected OPEC concerns that supply is even now outstripping demand.
“The unexpected part is that they’re beginning to cut back slightly on production now,” said Deborah White of SG Securities in Paris. She said that means “the highs are behind us, but there is no reason to expect prices to go down fast.”
Peter Gignoux , a London-based oil adviser for GDP Associates in New York, agreed that OPEC’s action indicated a recognition that prices have probably peaked and are headed toward the range of $40 to $60.
While well below the record of over $70 set in late August, that span would still be substantially above the $30 level per barrel about two years ago, when crude prices started climbing.
Current oil prices are about 40 percent above their levels at the start of the year. But it appears that consuming nations have adapted to paying more for oil without the economic downturns that have accompanied previous high oil price periods.
Confirming the decision to keep ceilings at present levels, Sheik Ahmed Fahd Al Ahmed Al Sabah, OPEC’s president and Kuwait’s oil minister, said: “We prefer to have the market with secure supply and stable prices.”
Al Sabah said ministers also may discuss a preferred price band at the January meeting, but he declined to say how far prices had to fall before outputs would be cut.
The ministers, he said, had also agreed to shelve an offer to provide an extra 2 million barrels of oil daily whenever needed. The offer was made earlier this year to calm markets after oil prices soared to all-time highs of more than $70 due to oil facility damage from hurricanes Katrina and Rita along the U.S. Gulf Coast.
That offer, which was never implemented due to lack of demand, expires Dec. 31. But OPEC stands ready to renew it “whenever there is a shortage of supply,” Al Sabah told reporters.