And there is a further complication. OPEC, although it has given out the overall target number for the current output agreement, has not published the individual quotas under that target. Which means that people like my colleagues and myself have had to work out those quotas by ourselves, sometimes with a bit of help from delegates or ministers who may confirm figures or indicate that our calculations are close to the mark.
Platts' latest survey of OPEC and oil industry officials and analysts suggests that the group's production has continued to increase alongside the strengthening of prices over the past few months that took US light crude futures to a one-year high of $82/barrel last month.
The survey estimates total OPEC output in October, including that of Iraq, at 28.89 million b/d, up 60,000 b/d from September. Excluding Iraq, October production from the 11 members bound by quotas averaged 26.4 million b/d, up 70,000 b/d from September.
The latest Platts estimates leave the OPEC-11 overproducing
their 24.845 million b/d output target by nearly 1.56 million
b/d. This means that compliance with the 4.2 million b/d of cuts
agreed late last year, which has
been declining since April as oil prices firmed, has fallen
further. We calculate October compliance at just below 63% --
quite a plunge from the peak rate of 82% in March.
OPEC has had little choice but to link its output policy to developments in the global economy, regardless of how it may view oil market fundamentals.
At its September meeting, it explained that, despite very high consumer inventories and gloomy fundamentals, it had decided to leave official levels unchanged because it did not want to jeopardize the nascent global economic recovery by cutting production.
In October, the price climb to $82/b spurred talk of a possible increase in official output levels at the December 22 meeting in Angola. Kuwaiti oil minister Sheikh Ahmed Abdullah al-Sabah and OPEC secretary general Abdalla el-Badri said ministers the group was ready to raise production if market conditions warranted such a move. Indeed, Sheikh Ahmed said OPEC would have to call an extraordinary meeting if prices climbed to $100/b.
Badri said at the time that an output increase would depend on several factors, including a continuation of oil prices at $75-$80/b, a drop in OECD oil inventories from the current 60 days of forward cover, real global economic growth and -- a view shared by Qatari oil minister Abdullah al-Attiyah -- a genuine need for additional oil.
More recent soundings from OPEC officials, however, suggest an ongoing reluctance to increase official targets despite the continuing rise in actual output. UAE oil minister Mohammed bin Dhaen al-Hamli was quoted last weekend as saying that raising official targets was not on OPEC's agenda for the December 22 meeting.
OPEC's latest monthly oil market report, released on November 11, gave no direct clue as to the likely outcome of the Luanda meeting. It has upwardly revised its estimates of demand for OPEC crude by 70,000 b/d to 28.7 million b/d in 2009 and by 110,000 b/d to 28.5 million b/d in 2010. But the 2010 number represents a 200,000 b/d year-on-year fall in the call on OPEC crude plus movements in and out of stocks. It is also 390,000 b/d below October production as estimated by Platts and 490,000 b/d OPEC's own estimates, derived from secondary sources.
So, despite the upward revisions in demand, OPEC takes a cautionary approach in its monthly report, making the point that even expectations of economic recovery are realized, it is by no means certain that demand will return to pre-financial crisis levels.
"Energy policies and behavioral changes are bound to have some impact on consumption and this will gradually feed into overall demand patterns, especially in key sectors such as transportation. However, it is still premature to assess the full effect of these changes," OPEC said.
In the meantime, it said, oil demand growth in the next few quarters will be subject to ongoing risks to the economic outlook, with particular implications for the second quarter, a traditionally lower period for demand.
If demand turns out to be lower than expected, there will be further pressure on already weak fundamentals given that inventories are high by historical standards, OPEC said.
At some point, OPEC ministers will have to debate the question of whether not jeopardizing economic recovery means raising production, but based on the most recent utterances from various corners of the organization, December may not be that time.
