PREVIEW: No change in OPEC quotas expected because of lack of options

By Albert Otti Dec 20, 2009, 2:08 GMT

Vienna - Lacking better options, the Organization of the Petroleum Exporting Countries (OPEC) is likely to keep oil production quotas where they are, analysts said ahead of the cartel's meeting in Angola's capital Luanda on Tuesday.

'There is no more OPEC can do. The price has risen,' said British energy expert John Hall of John Hall Associates.

The basket price for oil pumped by the group's 12 member countries has risen from a monthly average of 38.6 dollars per barrel (159 litres) to stabilizing above 70 dollars since October.

Reducing output further, in addition to a cut of 4.2 million barrels per day (bpd) decided last year, would harm the global economic recovery, Hall said.

Another argument against reductions is the fact that several OPEC countries including Angola and Iran are producing more oil than the quotas they agreed to.

'One can't reduce because one has not implemented the negotiated cuts yet,' said analyst Eugen Weinberg at Commerzbank in Frankfurt, adding that increased output would depress oil prices.

At the most, OPEC's 12 oil ministers could decide to take back some of the 4.2-million bpd cut, to which Hall said would be a 'cosmetic' adjustment to reflect real output.

Besides talking about compliance with the current quota of 24.85 million bpd, which does not include cartel member Iraq, the ministers could consider Baghdad's plans to dramatically ramp up production in the next five to eight years.

The country plans to boost output from the current 2.5 million bpd to between 6 million and 12 million bpd, said Johannes Benigni at JBC Energy in Vienna.

'They will have to think about how to integrate Iraq into the quota system,' he said, which could mean reducing other OPEC members' quotas.

Concerning the demand outlook, OPEC last Tuesday increased its global oil requirement figure for 2010 to 85.13 million bpd, with most of demand growth hinging on China and the Middle East.

Hall warned however that China's economy would not grow unless demand for its products rose in the United States and other industrialized countries.

But analysts agreed that the rise of crude oil prices was not so much driven by questions of supply and demand, but by speculation and the weak dollar.

While several analysts see oil prices as remaining stable or rising to above 80 dollars by the end of 2010, Weinberg at Commerzbank expects a decrease to 60 dollars or lower, arguing that the current price already reflects expected demand for next year.

However, he said that a possible escalation of the row over Iran's nuclear programme could change the picture, as Tehran has threatened in the past to close the Straight of Hormuz, a vital oil shipment route.

'Should anything happen in connection with Iran, it will be impossible to hold back prices,' he said.