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27 February 2024

Opec to freeze oil output amid falling prices: analysts

By Agencies


Opec, whose members together pump 40 per cent of the world's oil, will very likely maintain output levels at a meeting in Vienna on Friday as crude prices slide on fears of a US recession, analysts said.

They said the balance of opinion favours the status quo, with few members ready to countenance any increase in production, as called for by US President George W. Bush recently.

At the same time, reducing output does not seem a viable option at the moment although some producers are unhappy at the prospect of less revenue as prices fall.

"We believe they are unlikely to hike output amid the threat to oil demand growth, rising US inventories and sub-$90 a barrel oil prices," said Sucden oil analyst Nimit Khamar.

President Bush, during a visit to the Middle East earlier this month, urged the 13-member Organisation of Petroleum Exporting Countries to increase output to help bring down prices, which soared to a record high above $100 a barrel at the start of January.

However since then, worries that recession may strike the world's richest economy and so undercut global demand for crude, have sent oil prices tumbling.

On Monday, the price of New York light sweet crude ducked beneath $90 as sliding world stock markets stoked fears of a US-led economic slowdown.

New York crude now stands about 11 per cent below its record high of $100.09 struck on January 4.

Falling prices mean fewer petro-dollars for Opec, which could result in the cartel even deciding Friday to cut output to keep income high, according to the Centre for Global Energy Studies.

"The Organisation's member-countries have become dependent on the soaring oil revenues of recent years and are likely to seek to defend them in the face of a weakening global economy by cutting production to maintain prices," CGES said in its January report.

Most traders, however, believe that energy ministers from Opec -- which is led by the world's biggest oil producer Saudi Arabia -- will agree to freeze production levels amid nervousness across global financial markets.

"It would be very surprising if Opec raises production with all the uncertainties on the economy and on demand," said Bill Farren-Price, an analyst at Medley Global Advisors.

The group's official daily output ceiling stands at 29.67 million barrels, with only Iraq not part of the quota system.

Opec's gathering is an 'extraordinary' meeting that was scheduled at its last official get together on December 5 in Abu Dhabi.

There, Opec decided against increasing production, insisting the market was well supplied with crude and that high prices were caused by speculative activity, not real demand.

"We still expect to see no change in output policy (on Friday), especially as they meet again at the beginning of March" for an official meeting, said Petromatrix analyst Olivier Jakob.

Opec has maintained its estimate for 2008 growth in world oil demand, arguing that while high oil prices would brake demand in major industrialised countries, the market would continue to hold up in emerging powers such as China and India.

Strong demand from these Asian nations has contributed massively to the rise in oil prices which have doubled in just 12 months.

In its monthly report published last week, the influential CGES blasted Opec for insisting that unrest in major oil producers such as Iran, and the speculative buying of oil contracts, were behind crude's recent record-breaking run higher.

"The path of oil prices over the past twelve months can be explained in large part by market fundamentals, without needing to shift the blame on to speculators or geopolitics," the energy consultancy said.

Opec comprises Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela. (AFP)