September 10, 2008 - OPEC September 10 pledged strict compliance with its existing crude
production limits, with the group's President Chakib Khelil saying he expected
the agreement to result in around 520,000 b/d of actual oversupply being cut.
The agreement reflects fears from some in the oil-producer group about
oversupply and recent sharp falls in world oil prices, although how much
actual production is cut is likely to depend on the policy of its most
powerful member, Saudi Arabia.
In a formal statement issued after the group's ministerial meeting in
Vienna, OPEC said it now had an 11-member output ceiling of 28.8 million b/d.
This is a reduction from the current 12-member ceiling of 29.673 million
b/d, reflecting Indonesia's decision to suspend its membership of the cartel
as a result of its dwindling production.
The new target effectively affirms individual quotas for member countries
set in September 2007, later adjusted to include allocations for new members
Angola and Ecuador.
"Since the market is over-supplied, the conference agreed to abide by
September 2007 production allocations (adjusted to include new members Angola
and Ecuador and excluding Indonesia and Iraq), totaling 28.8 million b/d,
levels with which member countries committed to strictly comply," OPEC said in
a formal communique.
Khelil told a press conference after the meeting that he expected the
agreement to result in a reduction in actual supply, which has been running
well above nominal limits in recent months.
The agreement will mean "a lowering of production by about 520,000 b/d,"
Khelil said.
Based on estimates of OPEC's August production published September 9 by
Platts, the 11 OPEC members bound by this new agreement produced a total of
29.55 million b/d, almost 750,000 b/d more than their combined target.
Saudi Excess
Exactly how much of this oversupply is cut back will depend almost wholly
on Saudi Arabia, OPEC's biggest producer which currently accounts for the vast
majority of the excess supply above official limits.
Saudi Arabia raised supply unilaterally earlier this year to calm fears
about supply shortages in the face of record oil prices.
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"We supplied more to the market to dispel the concerns about shortage of
supply, and it has demonstrated that there is no shortage," Saudi oil minister
Ali Naimi said September 9.
"We were concerned when it was in the $140s and everybody was predicting
$200, $250. That was a little bit concerning. So to help in moderating things
and assuring the world there is no shortage of supply, we did what we did and
I think it was very effective," he said.
Any change in Saudi oil output in September "depends on customer demand,"
Naimi said, adding: "As far as we are concerned the demand for Saudi crude is
very healthy."
Naimi September 9 described oil markets as "fairly well balanced."
OPEC president Khelil said ahead of the meeting, which started late
Tuesday, that he expected the group to leave both actual output and official
targets unchanged.
"We are producing at a certain level. Most probably we will stay with
that level for some time," Khelil said at the time.
Iran, however, had pushed for stricter compliance with formal targets,
warning that oversupply could push prices down further.
OPEC's decision was also in line a recommendation from a key OPEC panel
chaired by Iranian oil minister Gholamhossein Nozari, which agreed late September 8
to recommend that the group tighten discipline in line with official targets.
Oil prices have fallen by some $45/b since the record highs above
$147/barrel traded in early July. North Sea Brent fell below $100/b September 9
for the first time since April, trading as low as $98.89/b.
OPEC next plans to meet December 17 in Oran, Algeria, and then on March
15, 2009, in Vienna.
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