OPEC malcontents challenge oil output targets
- A near-doubling of oil prices since the end of last year should give OPEC the chance to take a bow next week for its disciplined output cuts, but there will discontent in the wings of the producer group’s meeting.
With oil rising this week to $62 a barrel from $33 in December, most analysts expect OPEC to stop short of a new cut in output after agreeing to remove 4.2 million barrels per day — 5 percent of world demand — to counter the recession.
That is just as well, because OPEC “malcontents” Venezuela, Angola and Iran are questioning individual supply targets or output figures. Analysts say the issue could complicate any change in overall supply and undermine efforts to present a unified front to the wider world.
“Rumblings about quota allocations and production are getting louder,” said Antoine Halff, analyst at Newedge in New York.
“The need to manage those issues will likely make it difficult if not impossible for producers to speak in one voice on any change in production targets.”
Besides those rumblings, some estimates of production, including OPEC’s own monthly report, say members pumped more in April for the first time since last year, suggesting waning compliance.
The malcontents, according to some estimates of supply from the Organization of the Petroleum Exporting Countries, have met less of their share of the cutbacks than OPEC’s Gulf members.
The meeting is on May 28 in Vienna.
OPEC does not provide official production figures and did not give individual targets under its supply cut agreement.
It uses secondary sources to monitor its output, a legacy of past disputes about how much oil members said they were pumping.
Venezuela, in the midst of a cash crunch that could worsen if its credit and debt ratings deteriorate further, has taken issue with the secondary sources’ estimates of its production.
It has published figures certified by an outside company aimed at rebutting estimates that Venezuela pumps around 2.1 million bpd, arguing its supply is much higher.
The country has long argued that its output recovered from a strike at state oil firm PDVSA in late 2002 to 2003, a view questioned by other analysts and forecasters.
Caracas, OPEC insiders say, could suggest in Vienna that other OPEC countries certify their output, an idea that has irritated Saudi Arabia, OPEC’s top producer and, according to many estimates, its most compliant.
“One of the surprises at the meeting could be Venezuela’s new position on independent certification of its production, particularly if Venezuela raises the suggestion that other member countries should do the same,” said David Kirsch, analyst at PFC Energy.
“That would not be met with euphoria to say the least.”
An OPEC delegate was doubtful any effort would work, given the failure of a previous attempt.
“OPEC tried this once before, about 20 years ago. But it never came to anything. Not a single report was filed by auditors. Some countries wouldn’t even grant visas for them!”
Angola, one of OPEC’s newest recruits, says its target is 1.656 million bpd, not the 1.52 million bpd included in an OPEC internal document in December which has been widely taken to be its output limit.
While pumping more than either of those, the country is also the holder of OPEC’s rotating presidency and speaking about the need to improve compliance — an irony that will not be lost on the rest of the group.
Iran, the second-largest OPEC producer behind Saudi Arabia, has also questioned the baseline for its output cuts.
When such problems have come up for OPEC in the past, the organization’s response has often been to defer the issue and, when it has to, resolve it by finding a middle way.
For example, Algeria early this decade asked for a larger OPEC target. It waited for years, but continued to pump as much as it could because rising world demand and prices allowed OPEC to ignore the issue.
The bottom line, some say, is that so long as prices keep going back toward the $70 to $75 that OPEC officials say is needed to keep up industry investment, rumblings about compliance and targets are of secondary importance.
“You’ve got a growing number of OPEC producers not toeing the line,” said an OPEC watcher. “It is going to create a row? No, not as long as prices keep rising.”