Opec reaches production deal

Dow Jones/Vienna

Qatar’s Minister of Energy and Industry, HE Dr Mohamed Saleh al-Sada attending Opec’s ministerial meeting in Vienna yesterday

The Organisation of Petroleum Exporting Countries, responsible for about a third of the world’s oil production, yesterday unified in an agreement to maintain its output levels, but in a sign of continuing tension among members, avoided a decision on how much oil each individual member would produce. The decision comes amid growing fears that the continuing eurozone crisis will trigger a recession in Europe and slice into global oil demand. Oil futures prices fell following the decision and as the dollar rose sharply against the euro due to the fears about the sovereign debt crisis. Opec sounded a note of caution about the outlook of the market, saying in a statement that “world oil demand is forecast to increase slightly” next year, but “this rise is expected to be partially offset by a projected increase in non-Opec supply.” That left little room for Opec to turn up the taps. The group raised a production ceiling governing how much the group as a whole can produce to 30mn bpd, from 24.845mn bpd, although overproduction by some members and the inclusion of Iraq in the group’s ceiling means the new level is the same as current production. The group pledged to monitor production levels by individual members, but a failure to set country production quotas means the new ceiling could again be threatened by overproduction. The agreement came after Opec’s last meeting in June ended in failure to agree a deal amid bitter discord over whether to raise oil production. Rising oil prices had helped fuel global inflation and some Opec members including Saudi Arabia had wanted to raise production, while Iran and others had wanted to maintain output. The contentious conclusion of the June gathering had raised doubts about Opec’s ability to coalesce around a common policy this time. But the agreement yesterday positions the group to better respond in case of a large drop in oil prices, a scenario that has looked more likely of late amid the weakening global economic outlook. David Fyfe, head of the oil markets division at the International Energy Agency, praised the Opec decision as “sensible” and said it would help ensure that the oil market is “reasonably balanced” in 2012. The IEA represents consuming nations and has pressed for greater output. As recently as yesterday morning, the Venezuelan oil minister balked at key elements of the deal, citing concerns about overproduction from some members. But Opec officials said this concern had been resolved following pledges by Gulf members to trim back. In its official communique, Opec said members “would, if necessary, take steps (including voluntary downward adjustments of output) to ensure market balance and reasonable price levels.”