Consumers received no solace from OPEC, which said Sunday that oil prices near $50 per barrel would remain high through the spring, even as the cartel decided to keep its production ceiling unchanged.
The decision, reached at a truncated meeting of the 11-nation group, means that consumers worried about the price of winter heating oil and gasoline will likely see no relief in their bills or costs at the pump.
OPEC’s current quota of 27 million barrels a day was set in December, when the group agreed to shave output by 1 million barrels. But the 10 members of the group subject to the quota — Iraq is not bound by a limit — have been overproducing by a total of 500,000 barrels daily.
Kuwaiti oil minister Sheik Ahmad Fahd al-Ahmad al-Sabah, who leads the Organization of Petroleum Exporting Countries, said he was given permission to conduct a telephone meeting before the next gathering March 16 in Iran to address output if market conditions warrant.
Al-Sabah said prices have been driven higher amid fears of a cold winter in Europe and North America, where demand for heating oil is high. He said OPEC’s decision was aimed at bringing more stability to the market, and called on consumers and producers to “walk together ... for prices to be acceptable.”
'Interest of stability'
“Although there is no shortage of supply, the stocks have been built up, and continue to be built up,” he said. “High prices led OPEC to arrive at the decision in the interest of stability and in the interest of the consumer, who likes to have stability in prices.”
The group also decided to temporarily suspend its price band of $22 to $28 a barrel, which was set in March 2000 and has largely been ignored since last year.
OPEC’s output decision also was a signal that it doesn’t believe that higher prices for its oil to fuel development in Asia, particularly in China, will cause any slowdowns.
“We think the high price will not affect the global economy,” al-Sabah said. “There won’t be a strong negative for the economy.”
OPEC, which accounts for one-third of the world’s oil supply, is seeking to keep its buyers — and their consumers — from becoming jittery that prices could resume their climb. Light sweet crude on the New York Mercantile Exchange hit a record $55.17 per barrel in late October, and closed at $47.18 a barrel on Friday.
Consumers won’t see higher prices as a result of OPEC’s decision unless demand surges in the coming weeks, said William R. Edwards, of Texas-based Edwards Energy Consultants.
He said the move to keep the ceiling the same didn’t address the bigger issue of making sure the refining capacity is taken care of adequately. Without additional refining capacity, he added, OPEC oil can’t be processed into gasoline or heating oil.
Al-Sabah said any indicators on where the price band for OPEC’s reference basket of seven crudes should go would come later in the year.
“We have to wait until the second quarter of this year to know exactly where the price indicator will head, but I believe that $35 is a suitable price as an average price for the OPEC basket of crudes.”
On Friday, the basket price stood at $41.88.
Al-Sabah said OPEC won’t hesitate to examine the issue of its ceiling — either lowering it or raising it — if there is a change in the market over the next six weeks.
OPEC’s members said current price levels were acceptable.
On Monday, the markets will show their reaction to OPEC’s decision and the elections in Iraq. The first free election in half a century saw polling stations hit by suicide bombings and mortar attacks aimed at wrecking the vote. At least 44 people died, including nine suicide bombers.
Edwards said any success in Iraq’s vote won’t be felt immediately.
“It won’t be just turning a switch and say ‘OK, we’ll do it now,”’ Edwards said. “The right conditions require a government structure that will guarantee that agreements are made and contracts that are actually fulfilled, and that’s going to take a little while.”