London: Opec may struggle to agree on a new quota this week, six months after its last meeting collapsed, as Saudi Arabia pumps the most crude in 30 years and Iran risks losing customers as a consequence of European sanctions.
The Organisation of Petroleum Exporting Countries will probably fail at the December 14 meeting in Vienna to set a target that more closely matches production, according to all but five of 26 traders and analysts surveyed by Bloomberg News. Instead, they are likely to stick with a three year-old ceiling that members are exceeding by 11 per cent.
The group failed to reach an agreement on quotas for the first time in at least 20 years at its June 8 meeting when a Saudi-backed proposal to boost output to make up for lost Libyan supply was rebuffed by Iran, Venezuela and four other countries.
Six months later, the outlook for global oil demand is being clouded by the highest Saudi output since at least 1980, the prospect of restrictions on Iranian oil sales and the risk that Europe's debt crisis may drive the world into a recession.
"To realign the quota is a huge task," said Leo Drollas, chief economist at the London-based Centre for Global Energy Studies, a consultant founded by former Saudi Arabian Oil Minister Shaikh Ahmad Yamani.
"The Iranians will be saying their usual things, that we must cut, and the Venezuelans the same. The Saudis are disillusioned."
Brent oil futures have gained 14 per cent this year, trading as high as at $108.80 a barrel yesterday on London's ICE Futures Europe exchange. Brent traded at a three-year high of $127.02 on April 11, partly as Libyan exports were disrupted. Opec's "basket" price for crudes from member states averaged $107.51 so far this year, the highest ever yearly mean.
European governments are weighing a boycott of Iranian oil after a November 8 report from the United Nations' International Atomic Energy Agency said that Opec's second-biggest producer was working on a nuclear weapons programme as recently as last year, a charge the Islamic republic denies. Saudi Oil Minister Ali Al Naimi said a week ago that his country, the largest Opec producer, is pumping more than 10 million barrels a day.
The 11 Opec members that are subject to formal limits last month pumped 2.81 million bpd more than the 24.845 million-barrel target agreed in December 2008, a separate Bloomberg survey showed.
The group has left the ceiling unchanged at its eight subsequent meetings. When Iraq is included, the organisation produced 30.4 million bpd last month, the survey showed. Iraq doesn't have a quota.
This week's meeting will be "very comfortable" and without the "friction" of the June 8 gathering, Opec Secretary-General Abdullah Al Badri said in Riyadh on November 20.
Al Naimi described the June meeting as "one of the worst" he has attended. Ministers from Angola, Ecuador and Nigeria have signalled quotas will be left unchanged, while Algeria, the UAE and Iraq have expressed satisfaction with current price levels.
Opec's 12 members will continue pumping about 30 million bpd through the first quarter of 2012, the Bloomberg survey found.
There is a "compromise emerging" to update the quota to that amount to match current output from all members, Bill Farren-Price, chief executive officer of Petroleum Policy Intelligence, a Winchester, England-based consultant, said in an emailed report on November 29.
Of the five analysts and traders who dissented from the majority view in the Bloomberg survey, three predicted the ceiling will be raised. The remaining two made no forecast on the quota itself, preferring instead to predict production levels. One said it will rise by 300,000 bpd. The other said it will remain unchanged.
Venezuela wants Opec countries that are exceeding their quotas to cut supply back to agreed levels, the country's Energy Minister Rafael Ramirez said on November 28.
Saudi Arabia boosted output by about 1.3 million bpd between March and August to make up for the loss of exports from Libya during the uprising against Muammar Gaddafi and in June backed the Opec secretariat's own recommendation that more supply was justified.
Brent rises over $108 on China report
Brent crude oil rose above $108 yesterday after a Reuters report that China's central bank will create a new investment vehicle worth $300 billion, part of which would be focused on Europe.
The report, which also boosted the euro, raised hopes that funds from the world's second-biggest and fastest growing major economy could be used to support European growth and soften the impact of the euro crisis.
Markets had earlier fallen after a European Union summit left the bloc divided over moves to build a fiscal union and tighten integration in an attempt to rescue the euro.
Thorbjoern Bak Jensen, analyst at Global Risk Management, said the exclusive Reuters report from Beijing had helped reverse negative sentiment after the division at the summit.
"It gives some support to risk sentiment," Jensen said.
A source with knowledge of the matter told Reuters the Chinese investment vehicle would operate two funds, one targeting the United States and the other focused on Europe. It would make aggressive overseas investments.
ICE Brent futures rose 80 cents to $108.91 per barrel by 1155 GMT, reversing an earlier $1 loss to a low of $107.11. US crude futures rose 60 cents to $98.94, after losing more than $2 on Thursday after the ECB news.
The Chinese report helped boost the European single currency, pushing it to an intra-day high of $1.3433 after early losses on news of the outcome of the EU crisis summit.
Twenty-three of the 27 EU leaders at the summit in Brussels agreed more integration with stricter budget rules for the Eurozone, but Britain rejected proposed amendments to the EU treaty after failing to secure concessions for itself.
