OPEC Opts to Bolster Production
VIENNA, Austria --- The Organization of Petroleum Exporting Countries (OPEC) last week decided to increase production by 500,000 barrels per day, beginning Nov. 1. The move reverses OPEC members' recent statements indicating the group planned to hold production steady.
OPEC's announcement signals an attempt to provide enough supplies to prevent a sharp increase in prices, but is unlikely to alter the overall tight market situation, the U.S. Energy Department's Energy Information Administration (EIA) said.
OPEC's Sept. 11 press release noted that while there had been a build-up in global crude oil inventory levels, ongoing tightness in U.S. products markets and the high-demand winter season required keeping the market adequately supplied. OPEC agreed to reassess the market situation at a meeting on Dec. 5. The group could also review the market situation at an oil summit convening OPEC's heads of state Nov. 17-18 in Riyadh, Saudi Arabia.
When OPEC met back in September 2006, the group concluded that continued inventory build-up to above the five-year average, combined with expected growth in non-OPEC supply and falling prices, had signaled a clear imbalance between supply and demand. That assessment led to OPEC's decision the following month to cut production.
Recent global oil market indicators have now led OPEC to a different conclusion. OPEC production cuts over the past year, targeted at 1.7 million barrels per day from a base production level of 27.5 million barrels per day (excluding Angola and Iraq), have firmed oil markets. Although OPEC did not achieve total compliance, there was enough production restraint to reverse the downward price trend that began a year ago.
Actual OPEC crude oil production during the second quarter of 2007 was 1 million barrels per day lower than third quarter 2006 levels, the EIA said. Further, OPEC's fears about non-OPEC production growth did not materialize. Although OPEC was concerned that the rebound in non-OPEC supply in 2007 would be at its highest level since 1984 (1.5 million barrels per day) in 2007, the EIA projects that the non-OPEC supply increase will actually be about 0.6 million barrels per day in 2007.