OPEC unlikely to go for drastic changes on December 14

 

As next week's OPEC meeting draws closer, all indications are that ministers will leave crude output pretty much unchanged. But what does "unchanged" mean exactly?

With oil prices hovering at or above $100/barrel, there is no great pressure on the oil producer club to do anything drastic for the time being.

Several oil ministers have said markets are balanced, which seems to be a sign that they see little need to make big changes at this point. More pressing, some analysts have suggested, is the need to reach some kind of accord that they can all live with and that will prepare them for potential cuts next year.

The outcome of the December 14 meeting will depend to a large extent on OPEC kingpin Saudi Arabia whose oil minister, Ali Naimi, earlier this week described the market as balanced and said he would go to Vienna with an open mind. The latest Platts survey of OPEC and oil industry officials and analysts, released earlier today, estimates Saudi crude output at 9.7 million b/d, 100,000 b/d higher than October volumes but well below the 10 million b/d figure Saudi officials say was the November average.

The most logical solution, a senior OPEC delegate said this week, would be for the group to set a crude output ceiling reflecting overall demand for OPEC oil, but without defining individual production quotas. This would leave OPEC with an overall output target or ceiling within which key producers could adjust volumes in line with demand and it would avoid opening the Pandora's Box that is the quota system.

In its November monthly oil market report, the OPEC secretariat raised its estimate of demand for crude from its member countries in 2012 to 30.04 million b/d, marginally higher than the estimated 2011 average of 30.03 million b/d. It will publish its December report on December 13, a day ahead of the meeting.

OPEC's upcoming meeting will be the first since it spectacularly failed to reach agreement on output levels in June, when the 12-member group split down the middle over a Saudi proposal to increase output in line with the secretariat's projection of higher demand in the second half of the year, using estimated actual production as the baseline.

The rift that doomed that meeting may not be an issue next week, but with OPEC you can never rule out surprises.

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