OPEC reported a rise in output despite a pledge from the organization’s member to reduce production to meet quotas agreed to in December.
Five members (Saudi Arabia, Kuwait, Iran, Nigeria and Angola) increased production over the past month by a total of 180,000 bbls/day, although Saudi Arabia remains within its quota of roughly 8 mln bbls/day. The increase in output is the group’s first since last July. The cartel now produces just over 28 mln/bbls per day, almost 900,000 bbls over its quota.
OPEC members meet on May 28th and look set to maintain output as prices hit $60 a barrel – up over 80% from lows in February of $32/bbl – despite OPEC President Abdallah El-Badri’s stated goal that oil should reach $70/bbl and the expectations of weaker demand. OPEC announced it expects oil demand to drop to roughly 84 mln bbls/day as demand in industrialized countries shrinks due to economic conditions and as oil supplies increased.
Angolan Oil Minister Chakib Khelil hopes that OPEC members would reduce output to their quotas. Adherence to those levels would be an effective cut in production and have other benefits. The move would allow OPEC to control prices without resorting to an announced cut which would face political backlash for worsening the global recession by raising oil prices. Adhering to quotas also helps OPEC meet the goal of creating discipline within the organization as discussed here on March 16. Greater coordination when prices are low would “contribute to market stability” as the organization announced in March – or more directly, it increases the power of OPEC in determining price levels due to its ability to coordinate supply. If members cannot coordinate, prices will likely fall.