OPEC leaves oil output targets unchanged

The Organization of Petroleum Exporting Countries agreed at its meeting in Vienna to leave output unchanged for the next six months.

Oil cartel agrees to production limit that is too high for current global demand

OPEC has succeeded in slowing U.S. shale production, but has decided to keep output unchanged for the next six months. ( Ken James/Bloomberg)

The Organization of Petroleum Exporting Countries agreed at its meeting in Vienna to leave output unchanged for the next six months, ensuring a continued glut of oil on world markets.

That means oil prices could move lower in the months ahead, though prices today bounced upward after a morning downturn.

OPEC's output target of 30 million barrels a day will do nothing to limit supply and will continue to put pressure on U.S. oil producers to pull back on production.

But in signs the cartel is unable to strictly enforce its own limits, OPEC left it to members to restrain their own overproduction.

Iran and Libya are preparing to open the taps of crude after years of diminished production and that could further raise global crude output. Venezuela has asked for a pullback to push prices higher, but has little clout in the organization.

OPEC output has exceeded the group's 30 million barrel a day ceiling for most of the past year, reaching 31.2 million in May, its highest in three years, according to Reuters.

Saudis want to maintain market share

The decision to keep output unchanged had been widely expected, as Saudi Arabia, OPEC's most powerful member, appears determined to maintain its own share of the world market in the face of non-OPEC production.

A worst case scenario for oil producers would have been a decision to raise output, but OPEC appears to believe the current glut is sufficient. Oil prices dropped from a high of $107 US a barrel last June to $45 a barrel in April, but now are trading in the range of $55 to $60 a barrel.

On Friday, there was fresh news of the pullback in the U.S. industry, with Baker Hughes Inc. reporting the number of rigs exploring for oil and natural gas in the U.S. declined by seven this week to 868.

West Texas Intermediate, the most common North American contract, was up 95 cents to $58.95 US a barrel. It was trading above $60 earlier this week.

Brent crude, the international contract, rose $1.16 to $63.19 US a barrel.

Western Canada Select, a Canadian oilsands contract, increased $1.64 cents to $51.48 US a barrel. The spread between WTI and WCS shrank to as little as $7 earlier this week, the lowest since 2009, after forest fires shut three oilsands operations in Alberta. But the spread is now back in the $$7.65 range.

OPEC nations next meet to set new production targets in December. The wild card in the meantime is global demand, which could pick up this year as economies recover.


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