OPEC agrees to keep current oil output, secretary general

From staff reports in Vienna

December 12, 2012 - OPEC ministers meeting in Vienna on December 12 agreed to maintain their current combined 30 million b/d crude output ceiling into 2013 and temporarily solved the politically difficult problem of choosing a new secretary general by extending Abdalla el-Badri's tenure for one year.

"We rolled over, so everything is as is, and we extended one year for the secretary general," Saudi Arabian oil minister Ali Naimi said as he left the meeting.

Naimi said there had been no discussion during the meeting of formal quotas for individual member countries or of bringing Iraq formally into the quota system.

OPEC agreed its current 30 million b/d ceiling in December 2011 but did not assign individual member country allocations under the total.

Iraq has not formally had an individual crude output quota since it invaded Kuwait in 1990, although OPEC says the 30 million b/d collective agreement covers Iraqi production.

In an official statement issued after the meeting, OPEC said the uncertainty around the global economic outlook was the biggest challenge facing the oil market in 2013, with an expected increase in oil demand outweighed by a predicted rise in supply from non-OPEC countries.

"Given the demand uncertainties, the conference decided to maintain the current production level of 30 million b/d. The conference also agreed that member countries would, if necessary, take steps to ensure market balance and reasonable price levels for producers and consumers," the OPEC statement said.

"In taking this decision, member countries confirmed that they will swiftly respond to developments that might have a detrimental impact on an orderly oil market," it added.

Challenge of Iran

One challenge facing OPEC next year will be the impact of tightening US sanctions on Iranian crude exports and production.

Iran's exports have already shrunk as a result of US and EU measures in effect since July. The International Energy Agency in its latest monthly oil market report December 12 estimated imports of Iranian crude by countries still buying oil from Iran at 1.3 million b/d in November, up slightly from 1.24 million b/d in October and 1.07 million b/d in September.

However, the IEA added, "Iranian crude exports are expected to turn lower next month and into the New Year--reaching a level closer to 1 million b/d--as EU and Asian countries reduce further their crude imports from Iran in order to secure continued access to the US financial system."

Iranian members of parliament have said in recent weeks that Iran may base its budget for the Iranian year beginning in late March 2013 on a crude export volume of 1 million b/d.

Oil minister Ghasemi declined to say how much crude Iran was currently exporting but pointed out that the Iranian government had been trying for a long time to diversify its income away from oil.

"In the past three years we have been able to cut 20% of the oil income from the current income of the country, and next year we will do the same," he said.

The US last week extended exemptions from its financial sanctions to nine Asian countries which have pledged further cuts in their imports of Iranian crude next year.

But Washington will also tighten further the noose with additional measures that will expand the existing sanctions to increase the economic strain on Tehran.

From February 6, any country that has received an exemption from the US allowing it to keep buying Iranian petroleum will avoid sanctions risk only if it makes its oil payment into an account at a bank within its borders.

The oil payment can then only be used to facilitate permissible trade between that country and Iran and cannot be transferred to a third country, repatriated to Iran or used to facilitate third-country trade.

Another challenge will be to try to find a longer-term solution to the impasse over appointing a secretary general.

Representatives from Saudi Arabia, Iran and Iraq--OPEC's top three producers--had been vying this week to succeed Badri, who had been due to leave the secretariat at the end of December following two three-year terms as secretary general.

But it came as no surprise when ministers had failed to agree on any one of the candidates--former Iranian and Iraqi oil ministers Gholamhossein Nozari and Thamer Ghadban and former Saudi Arabian OPEC governor Majid Moneef.

In-fighting

Despite its claim to be an economic organization, OPEC is riven by politics and political in-fighting has overshadowed the post every time it has come up for grabs.

There was some confusion just ahead of the meeting over the status of Iran's bid for the job when UAE oil minister Mohammad Bin Dhaen al-Hamli said there were now only two candidates, the Iraqi and the Saudi. It appeared that Nozari had withdrawn, although Hamli stopped short of saying so.

After the meeting, however, Badri was asked whether Iran had withdrawn. "No," he said. "All the candidates are still there."

The explanation may lie in comments by OPEC's current president, Iraqi oil minister Abdul-Karim al-Luaibi, on December 9.

A committee consisting largely of OPEC's board of governors had met in Vienna in October to assess and interview each of the four candidates. But, said Luaibi, the Iranian candidate was less than happy with this process.

Luaibi told reporters on December 9 that "there was an agreement where the candidates would each present himself to the committee to evaluate those candidates. There was some objection to this. The Iranian representative objected to this. They did not agree with this method of evaluation."

Despite OPEC's failure to agree on a successor--and on the Saudi candidate in particular--Saudi oil minister Naimi said he was very happy with the decision to keep Badri in place for another year.

"We have an experienced secretary general [in] position, extending it one year is a very, very very good decision," he said.

With Badri extended for another year, the heat is off OPEC's efforts to appoint a successor for the time being. But questions still remain as to whether the job will be opened up again to allow new applications and whether the existing candidates will have to reapply.

In the past, compromise candidates have emerged to break the deadlock over choosing a secretary general--Badri himself was one--and it may well be that the year ahead will see the emergence of a new "white knight" who can win the support of all countries.