OPEC producers are set to leave output limits unchanged at a meeting in Angola on Tuesday, officials from the cartel said, but look likely to call for improved compliance with existing curbs.
For this meeting -- no change, OPEC Secretary-General Abdullah al-Badri told reporters. There is consensus that there is no change.
If you look at the price, it is very comfortable. If you look at fundamentals, inventories they are on the high side. We have to work to bring them down to reasonable levels.
The Organization of the Petroleum Exporting Countries has not needed to alter its self-imposed output quotas since slashing supplies late last year to reverse a price crash as the world economy slid into recession. If the price had stayed below $70 it might have put the wind up them. But it didn't go there, it is back in the $70s so they will leave well alone, said Neil Atkinson, senior analyst KBC Market Services.
Benchmark U.S. crude traded at $74 a barrel on Monday, having slipped briefly below $70 last week.
OPEC has no official price target but several countries, including leading producer Saudi Arabia, have called $75 a fair price for both consumers and producers.
Ministers look likely to focus on the degree of adherence with existing supply curbs which has weakened in recent months, allowing more oil onto the market.
I'm not happy, I want more compliance, said Badri.
What I'll be requesting and I expect others to do also is for countries to observe their quota and not to flood the market with crude that there is no demand for, said Iraqi Oil Minister Hussain al-Shahristani.
Leakage above allocations means compliance is only at about 60 percent of the 4.2 million bpd of restrictions agreed by the cartel late last year.
That puts production by the 11 members bound by output targets at 26.5 million bpd, versus a target of 24.84 million. Compliance peaked at about 80 percent in February and March, when prices were much lower.
The slide in compliance to 60 percent means OPEC is now pumping 800,000 bpd more than it was in February.
That has helped lift commercial storage among industrialized nations to 60 days of demand, too high for comfort for producer countries. In addition, there is an exceptionally large volume of inventory afloat at sea. Badri said 52 days of forward demand cover was reasonable.
There is no evidence of any significant stock draw in 4Q so the oil market will be entering 2010 with the highest OECD stock levels in a decade, said David Hufton, managing director of oil brokerage PVM.
The least compliant OPEC member is Angola, currently holding the rotating presidency and host of Tuesday's meeting.
Far from having cut output, Angola has actually raised supply, according to Reuters data.
Other lax performers are Iran and Nigeria, respectively 21 and 9 percent compliant.
Biggest producer Saudi Arabia is carrying the lion's share of the burden, having sliced all but 80,000 bpd of its 1.24 million reduction, for 94 percent compliance.
(additional reporting Henrique Almeida, Alex Lawler, Simon Webb, writing by Richard Mably, editing William Hardy)