In line with market expectations, oil cartel OPEC held its current daily production output quota at 24.845 million barrels following the conclusion of its meeting in Vienna.In a statement the cartel noted that production increases among oil exporting countries that were not part of OPEC would offset rising global demand for oil. Clarifying its stand, OPEC said that although world oil demand is projected to increase marginally during the year, this rise will be more than offset by the expected increase in non-OPEC supply, meaning that 2010 is likely to witness a decline in the demand for OPEC crude oil for the third consecutive year.
The cartel added that the persistently high OECD stock levels (estimated to currently stand at 59-61 days of forward cover i.e. well above their five-year average) indicate that there has been a contra-seasonal stock build in the first quarter 2010 and the overhang in terms of forward cover is expected to continue throughout the year.
Furthermore, market commentators also believe that OPEC member nations already flout their set quota cap. Overall compliance of quotas is thought to be in the circa of 52% to 58% depending on whom you speak to in the City.
OPEC president, Germanico Pinto, said that while an improvement was seen in the oil market outlook in recent months, there was some way to go before the cartel could feel at ease with the situation. In case the markets get unstable, the cartel stands ready, “to swiftly respond to any developments which might place oil market stability in jeopardy.”
Despite the predictability of the announcement, markets responded with a customary spike largely fuelled by a weaker U.S. Dollar. NYMEX light sweet crude was up 77 cents at $82.47 a barrel, nearing the $82.50 barrier. Concurrently, in London Brent crude was up by 72 cents to $81.25 a barrel on ICE Europe. Next meeting of the cartel is set for Oct 14, 2010 in Vienna.
© Gaurav Sharma 2010. Photo Courtesy © Royal Dutch Shell