Opec ‘paving way’ to lift price target

VIENNA - Opec has agreed to leave output quotas unchanged and abandoned its price targets because members can do little to drive the oil market lower.

Iran's Oil Minister, Bijan Namdar Zanganeh, said the producer of more than a third of the world's oil would maintain its quota of 27 million barrels a day but members would study a new price target because the goal of US$22-US$28 a barrel was "unrealistic".

"Clearly they are paving the way for a significant increase of the oil price target," said Kevin Norrish, an analyst at Barclays Capital. "This will be another strong year for oil as spare capacity stays low."

In December, Opec agreed to reduce output just as winter weather in the US and Europe boosted demand for heating oil, sending crude oil to US$49.75 a barrel.

Kuwaiti minister and Opec president Sheikh Ahmad Fahd al-Sabah said the group would monitor world oil inventories to decide whether to act before its meeting on March 16 in Isfahan, Iran.

He said inventories were now enough to meet 52 days of demand and an increase to 56 days would raise concern about a surplus.

Opec said global oil supply, particularly its members' output, exceeded demand, allowing commercial oil stocks to build to above their five-year average.

Last month, Opec lowered output by 800,000 barrels a day to 29.6 million, said Geneva-based consultant PetroLogistics, which tracks tanker movements. The total includes Iraq, which is excluded from the quota system.

"They are concerned about stockpiles building in the second quarter," Norrish said. "The question this year is, can they increase capacity faster than the demand growth?"

The Saudi Oil Minister, Ali al-Naimi, said Opec needed to invest in its oil fields and expand production capacity to meet rising energy demand.

Sheikh Ahmad said the group expected to have 2.5 million barrels a day of spare production capacity by the end of the year.

Last year, Opec failed to anticipate surging crude oil demand in China and, in March, lowered production targets to 23.5 million barrels a day.

Supply increases in July and August did not stop prices from reaching a record US$55.67 in New York in October.

Edmund Daukoru, Nigeria's delegate, said Opec should keep the US benchmark crude price at between US$45 and US$55 a barrel, while other members said a US$30-US$40 range was acceptable.

The London-based Centre for Global Energy Studies expects Opec to target an average price of US$40 a barrel for its benchmark oil index. It said Saudi Arabia, Opec's largest producer and its most influential member, would seek to keep prices above US$35 a barrel.

The Opec price benchmark was last at US$41.88 a barrel. Most Opec oil sells at a discount to futures prices because its members pump lower grades of crude. Two Opec committees will advise ministers on their study of a new price target at the next meeting. The Algerian minister, Chakib Khelil, said a decision might be made then on the price target.

"The question is how the market receives the removal of the band," said Roger Diwan, managing director of markets and countries for consulting company PFC Energy. "It just signals that US$40 to US$50 [a barrel] is the range."

- BLOOMBERG