OPEC Holds Quotas Steady for a Fourth Time This Year

Dec. 22 (Bloomberg) -- The Organization of Petroleum Exporting Countries agreed to keep production targets unchanged for a fourth time this year, as expected.

The producer group kept total output quotas at 24.845 million barrels a day, Saudi Arabia’s Ali al-Naimi and other ministers said after their meeting today in Luanda, Angola. OPEC is content with today’s oil price near $73 a barrel even as most of its members pump more than their allotted targets.

“Going forward, OPEC has to get a bit more serious at either improving compliance or really holding the line and stopping this upward creep in production,” said Mike Wittner, head of oil research at Societe Generale SA in London.

Oil prices fell following the decision. Crude for February delivery fell as much as $1, or 1.4 percent, to $72.72 a barrel on the New York Mercantile Exchange and traded at $72.87 at 4:12 p.m. London time.

Ministers from OPEC’s 12 member nations said there was a consensus to keep quotas unchanged even before they met for the closed-door talks, which lasted about 70 minutes.

“No change in quotas was largely expected by the market,” said Kaha Kiknavelidze, a managing partner at London-based Rioni Capital Partners LLP, a hedge fund that specializes in emerging markets. “More important is compliance which has deteriorated meaningfully. That puts pressure on prices.”

‘Perfect’ Price

Saudi Arabia’s al-Naimi, representing OPEC’s biggest producer, said earlier today that crude between $70 and $80 a barrel is a “perfect price.”

“That really cements $70 a barrel as the floor for prices,” said Amrita Sen, a London-based oil analyst at Barclays Capital.

OPEC last reduced its production targets in late 2008 in response to falling oil prices and demand following the worldwide recession. Quotas allowing combined output of 24.845 barrels of crude a day took effect at the beginning of 2009. Global oil output is about 86 million barrels a day, according to the International Energy Agency.

“OPEC’s strategy is if you combine recovering demand with flat OPEC production, you are going to get stock draws,” SocGen’s Wittner said.

The 11 members bound by quotas pumped 1.66 million barrels a day more than the collective ceiling in November, according to Bloomberg estimates, meaning those countries have completed 61 percent of their pledged 4.2 million barrel-a-day cut. Iraq is not bound by production quotas.

Quota Compliance

Abdalla el-Badri, the OPEC secretary-general, said he wants quota compliance to improve to between 75 percent and 80 percent.

While OPEC’s end-of-meeting communique today spoke of member countries repeating “their commitment to the individually agreed production allocations,” the reality is that most members are flouting agreed targets to take advantage of higher prices.

As well as excess production from Iran and Venezuela, Nigerian output has also swelled in recent months following a cease-fire by militants in the Niger Delta, Bloomberg estimates show.

Angolan Oil Minister Jose Maria Botelho de Vasconcelos acknowledged his country is not complying with “expected” levels with respect to its OPEC production quota.

Angola, Iraq

“We are complying at certain levels but our production capacity is significantly higher than the quota that was given to us,” the minister said at a press conference in Luanda.

Iraq may also become a headache for the producer group in future years because it is exempt from quotas and has signed several contracts with international companies such as BP Plc and Royal Dutch Shell Plc to boost oilfield production.

A presentation by the OPEC Secretariat, shown today to OPEC ministers and journalists, said the economic crisis had resulted in some permanent loss in oil demand from developed nations in the Organization for Economic Cooperation and Development.

“We are seeing demand from China, the Middle East and Latin America,” Saudi Arabia’s al-Naimi said before the meeting. “I don’t think demand for fossil fuels will go up in OECD countries.”

The IEA on Dec. 11 raised its forecast for oil demand next year, highlighting growth in Asia and the Middle East, rather than the OECD. “A key risk to the forecast pertains to the U.S. outlook,” the Paris-based agency said in its monthly report.

Oil prices have risen 63 percent this year, rewarding oil companies such as Exxon Mobil Corp. and OPEC nations that will earn about $575 billion in 2009 from oil exports, while hurting an airline industry that the International Air Transport Association forecast will lose $5.6 billion next year.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The group’s next meeting is scheduled for March 17 in Vienna.