OPEC retains production target

It’s 30 million barrels for fifth time despite rising demand

An welder works on a pipeline in the desert oil fields of Sakhir, Bahrain, at sunset on Tuesday. OPEC’s oil ministers voted Wednesday to maintain a production target of 30 million barrels a day.
An welder works on a pipeline in the desert oil fields of Sakhir, Bahrain, at sunset on Tuesday. OPEC’s oil ministers voted Wednesday to maintain a production target of 30 million barrels a day.

VIENNA -- OPEC, which supplies about 40 percent of the world's crude, decided Wednesday to keep its production target unchanged at 30 million barrels a day, a decision that was widely expected.

The Organization of Petroleum Exporting Countries reaffirmed the ceiling for a fifth consecutive meeting, Diezani Alison-Madueke, Nigeria's petroleum minister said after the event.

OPEC Secretary-General Abdullah Al-Badry sought to cast the 12 countries' decision in a positive light.

"We have a very comfortable price, and the market is very stable," he told reporters after an OPEC meeting in Vienna. "So everybody's happy."

OPEC's move was in part recognition by the oil cartel that most members will not be able to substantially increase output in the short term, even if the world's appetite for crude increases as major economies expand and inventories shrink.

The price of oil rose after the OPEC decision, with West Texas Intermediate crude for July delivery climbing 5 cents to settle Wednesday at $104.40 a barrel on the New York Mercantile Exchange.

The International Energy Agency, an oil consultant to major consuming countries, sees short-term demand rising. But many OPEC members are at their production capacity limits, and there are other problems.

Iran says it can increase output to 4 million barrels a day within months -- but remains constrained by sanctions imposed over its nuclear program. Domestic chaos in Libya has reduced its output to less than a quarter of the daily 800,000 barrels it would normally be able to produce. And production from Venezuela and Nigeria has slipped because of economic and political difficulties there.

Iraq is also under threat. Jihadists wrested control of the northern town of Mosul on Monday. While the loss of the city has no immediate effect on oil exports, now at over 3 million barrels a day, it adds to concerns over security and the country's plans to expand oil production.

China is hoarding crude at the fastest pace in at least a decade, shielding itself from supply disruptions and helping keep prices above $100 a barrel, analyst said.

The country imported a record volume in April as it emulates steps taken by the U.S. in the 1970s to create a strategic petroleum reserve, government data show. Chinese President Xi Jinping is building stockpiles as his nation clashes with Vietnam over resources in the South China Sea and faces potential risks to oil sales from Russia, Africa and the Middle East because of sanctions and violence.

The purchases are helping drive oil prices higher, according to Barclays Plc, Citigroup Inc. and Nomura Holdings Inc. As China's thirst for crude grows with the expansion of its emergency stockpiles and refining, the International Energy Agency estimates that the Asian nation is poised to surpass the U.S. as the world's largest oil consumer by 2030.

"This panicked stockpiling is one of the ways that geopolitical tensions can actually tighten physical oil markets," said Seth Kleinman, a London-based analyst at Citigroup. "This buying spree is partly driven by the infrastructure needs of China's ongoing refinery expansion but also reflects the rise in geopolitical tensions."

Sidestepping another difficulty, OPEC's oil ministers agreed to extend Al-Badry for a third year past the end of his normal term in efforts to defuse tensions generated by competing bids for the post by regional rivals Saudi Arabia and Iran.

OPEC still accounts for about 40 percent of world demand. But present difficulties leave it to OPEC powerhouse Saudi Arabia and its smaller Persian Gulf allies to make up for increased international needs, along with other major oil producers outside OPEC, such as Russia and the U.S.

Saudi Arabia is able to sustain production as high as 12.5 million barrels a day and is currently producing 9.7 million, said Ali al-Naimi, Saudi Arabia's oil minister.

"We don't need to worry about anything. This is the best time for the market," al-Naimi told journalists in a briefing before the meeting began. "Everything is good, stable and everyone is happy."

The Saudis regularly raise or lower production to meet demand.

"In the end it's the traditional swing producer, Saudi Arabia, that will be meeting any additional demand," said senior analyst Ehsan Ul-Haq of Energy Economics.

Information for this article was contributed by George Jahn and Margaret Childs of Associated Press and Wael Mahdi, Grant Smith and Nayla Razzouk of Bloomberg News.

Business on 06/12/2014

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