LUANDA (Reuters) - OPEC agreed on Tuesday to keep supply curbs unchanged but faces a battle to crack down on those in its ranks who are failing to comply with quota restrictions if it wants to drain bulging global fuel inventories.
The 12-member Organization of the Petroleum Exporting Countries that pumps some 50 percent of the world’s oil exports has seen crude prices almost double since the start of the year after it sliced output when recession hit fuel demand.
Oil prices traded just below $73 a barrel on Tuesday for U.S. crude, near the center of the $70-$80 range that many in OPEC say they prefer.
“At between $70 and $80, everyone is happy,” Saudi Oil Minister Ali al-Naimi said. “The current price is good for consumers, producers and investors.”
OPEC’s biggest producer, Saudi Arabia has made clear that it does not want to risk letting fuel prices get out of hand for fear of stunting a fragile recovery in world economic growth.
But Naimi expressed concern over the poor discipline shown by some OPEC members in observing quota restrictions. This has pushed up inventories in industrialized consumer nations to 60 days worth of demand.
Stricter adherence to the 4.2 million barrels-a-day (bpd) of reductions in force throughout 2009 would skim inventories to levels more acceptable to producers.
Asked for his opinion on compliance, Naimi said: “We expect more.”
OPEC’s official communique read: “Member countries repeated their commitment to their individually agreed production allocations.”
But it has little in its armory to ensure that happens other than an appeal to self-interest.
“We always ask them to at least try to implement the decision that has been taken,” said OPEC Secretary-General Abdullah al-Badri said.
“We can’t really force countries to adhere 100 percent, but we always encourage them to comply.”
OPEC estimates show that Saudi and its Gulf allies Kuwait and the UAE are at or near full compliance with output cuts. But Angola, Nigeria and Iran have made little or no contribution.
Compliance peaked in February at about 80 percent but has since slipped to 60 percent, adding about 800,000 bpd or 3 percent to OPEC supplies over the past nine months.
Some market analysts think OPEC may need to tighten supply if it wants to keep prices above $70 a barrel going into 2010.
“Without specific commitments from Nigeria and Angola there remains a question mark over future compliance,” said Lawrence Eagles of J.P. Morgan.
“We see it likely that lower prices will be needed to force OPEC to show clear resolve to rein in supplies. As such a shift down to the mid-$60s seems on the cards.”
“We suspect the ensuing price bias will be to the downside,” said Edward Meir of brokers MF Global.
“In the least, (market) participants may be unnerved by OPEC’s continuing refusal to tighten export quotas, and in fact, given energy’s bearish fundamentals, the cartel is lucky prices are not lower than they actually are,” said Meir.
Iraqi Oil Minister Hussain al-Shahristani said OPEC could mop up excess inventory simply by sticking to agreed limits.
“If the members restrict themselves to agreed levels of production that would eliminate more than more than one million barrels a day from the market,” said Shahristani. “There’s no need to revise the agreement, we just need to comply with it.”
Additional reporting Alex Lawler, Barbara Lewis, Rania al-Gamal, writing by Richard Mably, editing by William Hardy