OPEC’s targets are dead and gone – for now, at least

Opinions may be divided on this, but to all intents and purposes, OPEC’s targets are dead and gone.

The oil producer club issued a short communique after the acrimonious June 8 meeting.

The communique did not say OPEC had agreed a rollover of the 24.845 million b/d target in place since January 2009. It said that “no formal decision was reached on a production agreement.”

That target, derived from 4.2 million b/d in output cuts agreed in late 2008, came into force when market conditions were very different. The global economic recession was well under way and international oil prices had plunged below $40/barrel from an all-time high of more than $147/b just a few months earlier.

Individual quotas under that target were never published and, in any case, production from the 11 countries bound by the agreement never fell to anywhere near 24.845 million b/d.

Iraq was not part of that agreement. And as Libyan production fell in recent months, it looked as if we would have to start referring not to the “OPEC-11” but the “OPEC-10.”

Ministers may well agree a new set of quotas when they next meet on December 14 in Vienna, but until then there seems little point in differentiating between total OPEC production and “OPEC-11” production.

The latest Platts survey of OPEC and oil industry officials and analysts estimates that OPEC’s 12 members produced 29.57 million b/d in June, an increase of 530,000 b/d as Saudi Arabia, Kuwait and the UAE boosted production.

OPEC, meanwhile, downplayed the June 8 fiasco in its latest official monthly bulletin. It noted the disproportionately big impact of speculation on oil prices and the consequent volatility as well as the uncertainty created by the energy policies of consumer countries that discriminate against oil.

“In the light of all this, does it really come as a surprise if, once in a while, the OPEC conference is unable to reach a decision — as happened at the 159th ministerial meeting on June 8? This is not so unusual and occurs in other institutions too,” OPEC said in an editorial.

“On the few occasions that this has happened to OPEC in the past, we have weathered the storm and emerged the stronger for it,” it said, adding that members “recognized that this was just a temporary setback.”

Roll on December.

Platts