OPEC to Let Oil Quota-Busting Persist as Crude Exceeds $80

May 6 (Bloomberg) -- The Organization of Petroleum Exporting Countries will keep pumping beyond their quotas rather than alter official production targets after crude touched an 18-month high this week.

Oil has risen in the past few weeks because of expectations of global economic growth rather than a lack of crude supplies and the price gains may prove temporary, a Persian Gulf official familiar with OPEC policy said in a May 3 interview, on condition of anonymity. Crude traded in New York dropped as low as $78.87 today, from an intraday high of $87.15 on May 3.

OPEC agreed in March to uphold existing output quotas for a fifth time since 2008. Members are exceeding those allocations in response to prices that have averaged more than $80 a barrel this year. The group typically doesn’t alter official quotas unless it needs to signal that prices are too high or low, said Imad al-Atiqi, a member of Kuwait’s Supreme Petroleum Council.

“If there is any shortage of supply, then we will move,” otherwise “it would be a waste of time,” Qatari Oil Minister Abdullah bin Hamad al-Attiyah said in a May 4 interview in Doha. “Even if it’s $100 a barrel and it’s not related to shortage of supply then it will be very difficult.”

Oil prices were 82 percent higher in the first quarter compared with the same period last year, providing profits for Royal Dutch Shell Plc, PetroChina Co. and ConocoPhillips that were better than analysts forecast. Kuwait’s oil minister, Sheikh Ahmad al-Abdullah al-Sabah, said last month that $85 a barrel is “acceptable,” while his Saudi Arabian counterpart Ali al-Naimi said March 30 he “hopes” prices remain between $70 and $80.

Oil Price Forecasts

Al-Naimi and ministers from other Arab oil producing nations will gather in Doha, Qatar, for a May 9-12 conference hosted by the Organization of Arab Petroleum Exporting Countries, which includes seven of OPEC’s 12 members.

New York crude will average $81 a barrel this quarter and $80 this year, according to the median of more than 30 analyst forecasts compiled by Bloomberg. Crude traded above $80 during all of April and rallied above $87 on May 3 as U.S. manufacturing expanded in April at the fastest pace since 2004, signaling increasing fuel demand in the world’s biggest energy consumer. Oil subsequently retreated, trading at $79.60 a barrel at 9:12 a.m. London time today, as a strengthening dollar curbed the appeal of commodities.

OPEC is already pumping about 2 million barrels a day more than its quota allows, and ministers are wary of boosting supply even further on concerns that the global economic growth isn’t entrenched.

Market Message

Johannes Benigni, chief executive officer of consultants JBC Energy GmbH in Vienna, said OPEC would raise quotas to send a “communication” to the oil market only if prices become high enough to threaten the economic recovery.

“Members will start scratching their heads” if prices surpass $90 a barrel and would talk about it officially if prices were to go above $100, Kuwait’s al-Atiqi said in a May 4 interview. He expects prices to remain below $85 a barrel this year and also in 2011.

“There will be no need for the time being to consider anything, no need to revisit anything” until the next OPEC meeting in October, Shokri Ghanem, Libya’s top oil official, said in an interview from Tripoli on May 4. “The trend is not established yet, we can’t look at it when it’s been going up and down for two or three weeks.”

Inventories Gain

Crude oil inventories in the U.S. have gained 9.6 percent over the past three months to 360.6 million barrels, the highest since June 2009, according to government data.

Demand in China, the second-largest energy consumer, may be curbed as policy makers take measures to contain inflation. Manufacturing growth slowed in April, according to a May 4 report from HSBC Holdings Plc and Markit Economics. The Chinese government on May 2 ordered banks to hold more of their assets as reserves for the third time this year.

OPEC cut quotas to the current level of 24.845 million barrels a day at the end of 2008 after fuel demand fell during the worst recession since World War II and prices slumped from a record $147 a barrel in July 2008 to $32 in December that year.

The group, which supplies 40 percent of the world’s oil, will need to pump less than previously thought this year as production from outside the group increases more than forecast, according to separate monthly analysis reports from OPEC’s own secretariat and the International Energy Agency.

Members will need to produce 28.81 million barrels of crude a day to satisfy demand for the year, OPEC said in its April 14 report, versus actual March production of 29.26 million.

Flouting Quotas

The 11 members with quotas have all flouted their national limits as prices recovered. They pumped 26.88 million barrels of crude a day in April, according to Bloomberg estimates, which means they completed only 52 percent of their earlier pledge to cut output by 4.2 million barrels a day. Iraq has no quota.

“Oil hasn’t moved with any great momentum outside the range that officials say they are comfortable with,” said London-based Paul Horsnell, head of commodities research at Barclays Capital. “You’ve got to look at the fundamentals -- there’s no point in reacting with quantities if you don’t think the addition will justify the supply-demand balance.”

Among analysts whose forecasts are higher than the median is Francisco Blanch, head of commodities research at Merrill Lynch. Prices will average $92 a barrel in the second half and are likely to exceed $100 a barrel sometime later this year or in early 2011, Blanch said on April 26.

OPEC’s 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 Oct. 14.