OPEC officials Thursday finally accepted worsening economic conditions would keep oil prices low for now, toning down a previous call for higher prices and suggesting the organization may not cut production further as long as prices stayed steady. The statements, which show a conciliatory tone toward oil-consuming nations, came as forecasts for the global economy released this week were gloomier than expected.
On Thursday, the world’s main developed and industrializing nations, the G20 released a package of measures to counter the crisis, including boosting International Monetary Fund resources to $1 trillion.
“I think we can live with prices of around $50 for the time being. The world economy is in a very bad condition,” Abdalla el-Badri, secretary general of the Organization of Petroleum Exporting Countries, said Thursday.
El-Badri’s conciliatory tone was in sharp contrast with his statements in Davos on Jan. 30, where he said “we are not happy with $40, even $50 a barrel.”
Qatar oil minister Abdullah bin Hamad Al Attiyah echoed el-Badri’s Thursday statements, saying current prices were reasonable, given the current economic environment, while Kuwait’s oil minister Sheikh Ahmad al-Abdullah al-Sabah had already said Sunday he was comfortable with $50 a barrel.
Oil prices are now hovering around $50 a barrel, a drop of almost $100 from a peak of $147 a barrel in July last year, as a global recession drives down demand.
While El-Badri said OPEC still hopes for a rebound, the acceptance that lower oil prices will stay for now is a departure from OPEC’s previous emphasis on higher prices.
El-Badri, along with OPEC kingpin Saudi Arabia and OPEC’s presidency holder Angola, have frequently said around $70 a barrel would be a fair and reasonable price.
OPEC’s remarks Thursday don’t contradict those earlier statements. But a new emphasis on the need to be content with lower prices suggests OPEC can put up with the current level.
On Mar. 15, OPEC decided to keep its output unchanged and decided instead to focus on fully complying with 4.2 million barrels a day of cuts decided last year.
At the time, OPEC said the amount left to pull out of the market was about 800,000 barrels a day and said it would meet again on May 28.
Since then market watchers have seen evidence of further progress in implementing the cuts. Geneva-based Petrologistics, whose data are widely watched by the markets, said Wednesday its latest figures for March pointed to production still 700,000 barrels a day above target levels.
On Thursday, U.K.-based Oil Movements said shipments from 10 OPEC members were expected to fall by 960,000 barrels a day in the period Mar. 21 to April. 18.
Acceptance of current prices means “nothing is going to happen (on production quotas) in the short term,” said John Hall, a London-based oil expert and managing director of John Hall Associates.
“El-Badri is politically aware of the extent of the recession. The recession is moving faster than OPEC can ever cut,” Hall said.
Asked about OPEC’s future production plans, el-Badri said: “Let’s finish the 4.2 (million barrels a day cut) first.”
Prospects for the world economy are, in fact, now worse than when OPEC decided to postpone any further cuts on Mar. 15.
The Organization for Economic Cooperation and Development – which represents the main industrialized countries – Tuesday confirmed it now sees 2009 gross domestic product dropping 4.2% in 2009 in its member countries, a downward revision from previous estimates.
Meanwhile the World Bank said GDP growth in the developing world – which includes key oil consumers China and India – will slow to a projected 2.1% in 2009 from 5.8% in 2008. The new forecasts suggest demand for oil will be lower than expected, weakening prices. The World Bank said oil prices would average $47 a barrel for the year, $27 a barrel lower than earlier expectations. And Nobuo Tanaka, head of the International Energy Agency, which is under the OECD’s umbrella, warned Thursday more downward revisions to the IEA’s global oil demand projections could be on the way.
The recent statements by el-Badri and others suggest oil producers and consumers were reaching a better understanding of each other’s positions.
El-Badri said Thursday that weaker gasoline costs were helping crisis-hit consumers, while the IEA’s Tanaka recognized the need for higher prices to finance exploration and development, saying, “higher prices may not be a bad thing” if the economy recovers as they will encourage investment.
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