By Margaret McQuaile on January 15, 2010 9:20 AM | No Comments | No TrackBacks

OPEC's 24.845 million b/d ceiling, which covers 11 members but not Iraq, has been in place since January 2009. Over the past year, there has sometimes been talk of new cuts possibly being needed. At other times, the talk has been of a possible need to increase quotas.

And as the talk veered between quota cuts and increases, actual production was rising.

OPEC's deal, struck at the end of a year that had seen crude oil futures soar to all-time records above $147/barrel in July and then plunge below $40/b as the global financial crisis wreaked havoc in world oil markets, had got off to a good start.

The OPEC-11 managed to slash volumes by 970,000 b/d between December 2008, when their combined volumes averaged 27.51 million b/d, and January 2009, when they pumped 26.54 million b/d. Another big cut of 820,000 b/d followed in February, when OPEC-11 output fell to 25.72 million b/d, with a smaller cut of 110,000 b/d to 25.61 million b/d in March.

But by April, crude prices, which had recovered to around $50/b, seemed to have established themselves on an upward trend and OPEC restraint loosened.

By December, Platts estimates, OPEC-11 output had risen to 26.61 million b/d, 70,000 b/d more than January volumes and 1.765 million b/d more than the 24.845 million b/d target.

The 2009 average for the OPEC-11 works out at 26.15 million b/d, 1.2 million b/d more than the target.

Nevertheless, to give OPEC its due, December 2009 volumes from the OPEC-11 were 900,000 b/d lower than those of December 2008, while average 2009 volumes were 2.76 million b/d lower than average 2008 volumes of 29.1 million b/d

The International Energy Agency said in its latest monthly oil market report, released on January 15, that "were OPEC nonetheless to regain existing target output levels by mid-year and hold steady thereafter, this could result in a sharp tightening in OECD stocks."

But with oil prices at the higher end of the $70-$80/b range that OPEC seems to be happy with, the chances of OPEC getting anywhere near existing output targets must be slim indeed.

The US Energy Information Administration, the Department of Energy's statistics arm, which also released its latest monthly outlook this week, said it expected OPEC to boost crude output by about 500,000 b/d annually through 2011 as global oil demand recovers.

Kuwait's oil minister, Sheikh Ahmed Abdullah al-Sabah, told reporters this week that he didn't expect OPEC to change official output targets at its next meeting on March 17 despite lower compliance with the 4.2 million b/d of crude cuts agreed in late 2008.

Which makes one wonder exactly what conditions will move OPEC either to legitimize all or part of the 1.765 million b/d of overproduction or attempt to force its members to adhere more strictly to the agreed targets.