DUBAI/LONDON - OPEC is expected to keep output steady when it meets in Angola next week, rounding off a year of stable supply policy, as it bets economic recovery and rising demand will be enough to prop up the market.
International benchmark U.S. crude futures have fallen toward $70 a barrel, down from a year high of $82 reached at the end of October.
They are still more than double their low of just above $32 a barrel hit in December last year and within the $70-$80 range many in OPEC have said is high enough for producers to turn a profit and low enough to nurse a convalescing world economy.
"Inventories are coming down, the price is perfect and investors, consumers, producers are all very happy," Saudi Oil Minister Ali al-Naimi said early this month in Cairo when oil was around $75. "There is nothing to worry about."
In a Reuters interview shortly after OPEC last met in September, Naimi went so far as to predict there might be no need to change output targets for all of 2010 on the basis of supply and demand forecasts then available.
The level of excess supply has become even greater as in addition to brimming inventories on land, volumes of oil and refined products floating at sea have swollen.
In a Reuters interview, OPEC Secretary General Abdullah al-Badri said storage at sea totaled an estimated 165 million barrels.
But OPEC delegates said they viewed the situation as essentially the same as when the group last met.
"Nothing has changed. Not even the price really. There will be no change in output, not for this meeting. How many times do I have to tell you? The only question is why do we have to go all the way to Angola for a meeting?" one delegate said.
Analysts interpreted the Organization of the Petroleum Exporting Countries' latest monthly market reports as another signal the group would not take action.
It anticipated limited demand for OPEC crude, as rival supplies increased and excess oil continued to weigh on the market until the second half of next year, but it also saw an increase in oil use in the United States, as well as in Asia.
LONG PERIOD OF STABILITY
Provided the group does not spring any surprises at the December 22 meeting hosted by OPEC president Angola, this would be the longest period of steady output policy since 2005-6.
Then oil prices had faltered to around $60 a barrel, but a long-term bull-run, begun around 2002 was essentially intact.
The rally ended with a record spike to nearly $150 in July 2008, followed by the economic crisis and an oil price crash.
In response, OPEC announced in December last year a record cut of 4.2 million barrels per day from September 2008 output.
Since then, supply policy has only shifted informally as the 11 OPEC members with output curbs have reduced compliance.
As prices have recovered from the December 2008 fall to the lowest in nearly five years, OPEC's discipline has gradually slipped from historic highs of around 80 percent in April to only around 60 percent of agreed curbs now.
The most likely action in Angola would be to attempt to increase discipline.
"It's clearly a do-nothing situation. It's a wait and see situation," said Sadad al-Husseini, former top official at Saudi Aramco. "Behind the scenes there will be a plea for people to stick to quotas."
DEGREES OF PAIN
Some members of OPEC will be more comfortable with no action than others.
Core Gulf OPEC producers, led by Saudi Arabia, are on course to rack up fiscal surpluses after prices outperformed conservative budget assumptions.
By contrast, Iran -- in particular need of oil revenue to fund social spending and which has slipped furthest from its official target -- has said the current price was "not good."
(For graphics showing compliance, please click here here)
Iran could have reason to worry about downside price risk in the short and longer term.
OPEC's monthly report made clear it expected oversupply to still be a fact of the market in the second quarter when demand traditionally tails off after winter in the northern hemisphere.
Longer term, output from Iraq, which does not have a supply target, could rise close to that of Saudi Arabia following international auctions designed to draw in foreign investment.
Its oil minister has said, however, the country would not produce more than the market can absorb.
While supplies have the potential to increase, demand could dry up.
This month's Copenhagen talks to tackle climate change are not expected to produce instant results, but they have increased the momentum to seek alternatives to plant-warming fossil fuels.
International benchmark U.S. crude futures have fallen toward $70 a barrel, down from a year high of $82 reached at the end of October.
They are still more than double their low of just above $32 a barrel hit in December last year and within the $70-$80 range many in OPEC have said is high enough for producers to turn a profit and low enough to nurse a convalescing world economy.
"Inventories are coming down, the price is perfect and investors, consumers, producers are all very happy," Saudi Oil Minister Ali al-Naimi said early this month in Cairo when oil was around $75. "There is nothing to worry about."
In a Reuters interview shortly after OPEC last met in September, Naimi went so far as to predict there might be no need to change output targets for all of 2010 on the basis of supply and demand forecasts then available.
The level of excess supply has become even greater as in addition to brimming inventories on land, volumes of oil and refined products floating at sea have swollen.
In a Reuters interview, OPEC Secretary General Abdullah al-Badri said storage at sea totaled an estimated 165 million barrels.
But OPEC delegates said they viewed the situation as essentially the same as when the group last met.
"Nothing has changed. Not even the price really. There will be no change in output, not for this meeting. How many times do I have to tell you? The only question is why do we have to go all the way to Angola for a meeting?" one delegate said.
Analysts interpreted the Organization of the Petroleum Exporting Countries' latest monthly market reports as another signal the group would not take action.
It anticipated limited demand for OPEC crude, as rival supplies increased and excess oil continued to weigh on the market until the second half of next year, but it also saw an increase in oil use in the United States, as well as in Asia.
LONG PERIOD OF STABILITY
Provided the group does not spring any surprises at the December 22 meeting hosted by OPEC president Angola, this would be the longest period of steady output policy since 2005-6.
Then oil prices had faltered to around $60 a barrel, but a long-term bull-run, begun around 2002 was essentially intact.
The rally ended with a record spike to nearly $150 in July 2008, followed by the economic crisis and an oil price crash.
In response, OPEC announced in December last year a record cut of 4.2 million barrels per day from September 2008 output.
Since then, supply policy has only shifted informally as the 11 OPEC members with output curbs have reduced compliance.
As prices have recovered from the December 2008 fall to the lowest in nearly five years, OPEC's discipline has gradually slipped from historic highs of around 80 percent in April to only around 60 percent of agreed curbs now.
The most likely action in Angola would be to attempt to increase discipline.
"It's clearly a do-nothing situation. It's a wait and see situation," said Sadad al-Husseini, former top official at Saudi Aramco. "Behind the scenes there will be a plea for people to stick to quotas."
DEGREES OF PAIN
Some members of OPEC will be more comfortable with no action than others.
Core Gulf OPEC producers, led by Saudi Arabia, are on course to rack up fiscal surpluses after prices outperformed conservative budget assumptions.
By contrast, Iran -- in particular need of oil revenue to fund social spending and which has slipped furthest from its official target -- has said the current price was "not good."
(For graphics showing compliance, please click here here)
Iran could have reason to worry about downside price risk in the short and longer term.
OPEC's monthly report made clear it expected oversupply to still be a fact of the market in the second quarter when demand traditionally tails off after winter in the northern hemisphere.
Longer term, output from Iraq, which does not have a supply target, could rise close to that of Saudi Arabia following international auctions designed to draw in foreign investment.
Its oil minister has said, however, the country would not produce more than the market can absorb.
While supplies have the potential to increase, demand could dry up.
This month's Copenhagen talks to tackle climate change are not expected to produce instant results, but they have increased the momentum to seek alternatives to plant-warming fossil fuels.
