OPEC Holds Production Quotas Steady, Predicting Demand Recovery

May 28 (Bloomberg) -- OPEC decided to keep production quotas unchanged a meeting today in Vienna, banking on a recovery in oil demand toward the end of the year.

The Organization of Petroleum Exporting Countries, responsible for 40 percent of global crude supply, agreed to maintain production quotas at 24.845 million barrels a day, Saudi Oil Minister Ali al-Naimi said. It’s the second time this year the 12-member group has met without revising that total.

“The market is oversupplied, it’s true,” OPEC Secretary General Abdalla el-Badri told at a press conference afterwards, saying the group decided against cutting output to avoid sending the “wrong signal” and disrupting an economic recovery. “If we are able to keep this $60 to $70 price for the remainder of the year, it will be fine,” he said in a Bloomberg Television interview.

Oil futures in New York have gained 45 percent this year on speculation that demand will revive as the global economy starts to recover. Prices were little changed immediately after OPEC’s decision, which was correctly predicted by 25 out of 27 analysts surveyed by Bloomberg. Later in the day, an inventory decline boosted July crude to a six-month high of $64.99 a barrel.

“I don’t think there was any way they could justify cutting again at $60-plus crude,” said Mike Wittner, head of oil research at Societe Generale SA in London. “If they can maintain discipline and limit the production creep that comes with higher prices, stocks should start to come down.”

OPEC has yet to complete previous reductions that came into effect at the start of the year.

April Increase

The 11 nations bound by quotas, which exclude Iraq, pumped 25.81 million barrels a day in April, about 225,000 more than March and the first increase in nine months, according to OPEC’s latest monthly report. That means the group has completed 77 percent of its pledged 4.2 million barrel-a-day cut, down from a revised 82 percent for March.

Nigerian Petroleum Minister Rilwanu Lukman, 71, supported OPEC’s decision to keep production quotas unchanged, saying he’d like compliance with output targets to be 100 percent “if possible.” Algerian Energy Minister Chakib Khelil said the group’s overall compliance has “never been better.”

Still, Saudi Arabia is the only member so far to have curbed production to below its national quota, according to estimates compiled by OPEC and the International Energy Agency.

Oil Movements, a U.K.-based tanker tracking consultancy, expects OPEC to increase shipments by 1.4 percent in the four weeks to June 13.

Going Other Way

“They’re going the other way” instead of moving towards full compliance, Oil Movements founder Roy Mason said by telephone today from Halifax, England.

The Paris-based IEA cut its oil-demand forecast for a ninth consecutive month in May, predicting global consumption this year will fall the most since 1981. Saudi Arabia’s al-Naimi acknowledged yesterday that while he expects oil consumption to recover in Asia, he has yet to see signs that demand is increasing in Europe or the U.S., the world’s biggest consumer.

The U.S. recession will probably end in the third quarter, according to 74 percent of economists in a National Association for Business Economics survey.

“We are seeing light at the end of the tunnel,” el-Badri said at today’s press conference. While OPEC doesn’t have an official price target, oil is currently near a level that members can live with, he said.

‘Suitable’ Price

“$70 is suitable,” said OPEC’s el-Badri, who is a former Libyan oil minister. “We can invest and have a decent income” for our countries.

U.S. crude oil stockpiles earlier this month swelled to their highest in two decades. They fell a bigger-than-expected 5.4 million barrels last week to 364.7 million, the Energy Department reported more than four hours after OPEC’s meeting ended, helping push prices near to $65.

Saudi Arabia’s al-Naimi forecast that oil may rise to $75 a barrel by this year’s third or fourth quarter. “Prices are good, the market is in good shape,” al-Naimi, 74, said as he left OPEC headquarters today. The group’s next meeting will be on Sept. 9.