OPEC keeps output target steady, despite pressure to cut
“The use of instruments such as sanctions or direct military interventions in energy-producing countries will increase the price of oil and market volatility.” Rostam Ghazemi, Iranian oil minister
VIENNA — OPEC oil ministers agreed Thursday to keep their production target steady, in a compromise meant to defuse rivalries between Iran and Saudi Arabia and to send a soothing message to economically troubled consuming nations.
Oil prices have fallen more than 20 percent over the past two months, and a statement from the Organization of the Petroleum Exporting Countries cited “downside risks facing the global economy” and ample stocks of crude as being responsible for the trend.
While agreeing to hold the output target steady at 30 million barrels per day, the statement suggested that OPEC ministers were ready to come together on short notice if prices fell to levels dictating a production cutback. The ministers, it said, “confirmed their readiness to swiftly respond to developments that might place oil market stability in jeopardy.”
OPEC accounts for about a third of world crude production and its decision Thursday corresponded with its professed goal of taking volatility out of global oil markets. With the economies of Europe and the United States feeble and even China seeing a slowdown, keeping production targets steady at a time of falling prices was meant to reassure consuming nations that they do not need to fear the added burden of more pricey energy.
But analysts said OPEC’s sphere of influence was limited.
“The truth is the decision today is not nearly as important as three other events that will occur over the next few weeks,” said Jason Schenker, of Prestige Economics. He listed Sunday’s election in Greece, which could decide whether the country stays in the eurozone; a meeting of the Federal Reserve on Tuesday; and the July 1 implementation of an EU embargo on Iranian oil as much more significant in determining where crude is headed.
That embargo, combined with a U.S. push for a global ban on imports of Iranian crude, figured prominently on the sidelines of the closed meeting.
Iran came to Vienna seeking lowered output to raise prices, while the Saudis were looking to increase production to make crude more affordable. On paper the decision to keep output targets steady was meant to find a compromise between the two positions. But OPEC members normally ignore the official quota — the organization’s daily output is now estimated at nearly 32 million barrels.
OPEC Secretary-General Abdullah Al-Badry told reporters that there was a “collective decision” to honor the 30 million barrel ceiling. But the Saudis, and others with capacity, were expected to keep overproducing to make up for any shortfall caused by the sanctions on Iranian oil.
Iran has cautioned the Saudis not to use the oil weapon against it, and Iranian oil minister Rostam Ghazemi on Wednesday warned the U.S. and Europe that their tactics will backfire.
“The use of instruments such as sanctions or direct military interventions in energy-producing countries will increase the price of oil and market volatility,” he told an OPEC seminar.
While the Iran-Saudi controversy will continue to bubble, analyst Cornelia Meyer said Thursday’s decision is one that “allows everybody to save face,” while leaving OPEC positioned to change its ceiling as needed.
“We don’t know which way the economy is going. It could really tank, given the euro,” she said. “But, on the other hand, if something happens with Iran the oil price could spike, so it gives them the flexibility to deal with what happens over the next few months.”
In another manifestation of their rivalries, both Iran and the Saudis are fielding candidates for the post of OPEC secretary general, to be filled in December when Al-Badry of Libya retires. But Ecuador also is in the race, along with Iraq, and expectations are high that the ministers will opt for Wilson Pastor of Ecuador.
Al-Badry said ministers deferred a decision on his successor to the next planned OPEC meeting in December.