OPEC to keep output steady at upcoming Vienna meeting

With oil pricey but less so than last year, OPEC ministers will likely opt for the status quo at their meeting Thursday and keep output levels steady ahead of the summer driving season a period of traditional high demand.

After two cuts in the four preceding months, the likelihood of OPEC doing nothing makes sense from the viewpoint of the 12-nation organization.

Prices have declined from the record highs of above US$78 a barrel last summer. But at around US$60 a barrel, they are still more than 40 percent above 2004 levels, the result of a market rise beginning nine years ago when a barrel of crude went for as little as US$10.35.

Present prices leave comfortable profit margins both for producers and the major oil companies while remaining below the pain threshold that leads to less world consumption and increased interest in alternative fuels such as ethanol and wind and nuclear energy. So it looks to be in OPEC's interest to keep pumping at present levels but be ready to raise or lower output if prices fall too far, or rise too high.

"I expect that they should maintain the quota," said Frederic Lasserre, head of commodities research at Societe Generale in Paris. "They're quite happy with the price action over the last two months or so it's in their target zone."

OPEC cuts over the past four months have contributed to relative stability that has kept the price of a barrel of benchmark crude fluctuating between US$50 and US$60.

Iraq and new member Angola are not bound by quotas. But the 10 other members of the organization agreed to total cuts of 1.7 million barrels a day in October and February. And while analysts say that the reductions have not been fully implemented, they have been enough to keep prices at levels OPEC feels comfortable with.

"The general feeling is that they're probably about half a million barrels over" the production cutback targets, said John Hall, of London's John Hall Associates.

Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney, said OPEC ministers "don't perceive a need to cut," adding that the oil cartel would likely reconsider output levels if oil prices fall into the low-US$50s level. "Expectations are very widespread that it would be a surprise if they did anything one way or another."

But with the traditionally high-demand North American summer driving season approaching, there is little likelihood of a near-term prolonged slide in prices and of resulting production cutbacks any time soon. Instead, OPEC might be looking at pressure to increase production at its next scheduled meeting in June.

In its monthly oil report on Thursday, the International Energy Agency said that without Iraq and Angola daily OPEC oil supply fell 365,000 barrels in February to 26.8 million barrels a day. Total OPEC output last month averaged 30.2 million barrels 400,000 barrels less than OPEC should produce to meet world demand, said the IEA, the energy watchdog of the world's major industrialized countries.

And both OPEC and the IEA predict increased oil demand ahead up to 1 million barrels a day more this year for a total of 86 million barrels a day, with the greatest spike likely in the last half of the year, reports AP.

Ahead of Thursday's meeting, OPEC president Mohammed al-Hamli said global oil demand this year appears robust and expressed satisfaction with member compliance to previously decided production cuts although he said the organization was closely watching inventories that remained higher than average.

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