OPEC holds back on oil to keep prices up

Dec. 13, 2010 at 7:00 PM
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QUITO, Ecuador, Dec. 13 (UPI) -- OPEC nations kept crude oil production in check to ensure prices remained strong, a strategy that was in evidence as markets edged upward in response to the producer group's weekend talks in Ecuador.

Leading producer and Western ally Saudi Arabia sought to reassure consumer countries it would restrain price hawks within the 12-member Organization of Petroleum Exporting Countries as Venezuela led calls for prices to hit $100 a barrel.

Venezuela, Iran and other hard-line advocates for higher prices argued the prices could go beyond the current $80-90 level but Saudi Arabia ruled out moves -- including further output cuts -- that could encourage a further price spike. OPEC expects higher global demand in 2011 but won't change current oil production quotas.

Both the International Energy Agency and OPEC, in separate reports, saw global oil demand rising through 2011. The IEA said oil demand for 2011 could reach 88.8 million barrels a day, up 260,000 barrels a day from the current outlook.

OPEC also sounded warnings of further currency squabbles and exposure of banks to new pressures.

OPEC is reluctant to trigger any consumer moves away from its oil to non-OPEC suppliers, which could also produce a glut and cause prices to ease or even crash.

The group cited "lagging private consumption as well as persistently high unemployment" among its reasons for caution against any hasty response to the current economic climate. OPEC members are known to grow restless as prices move upward and often flout agreed quotas to profit from price spikes.

On the New York Mercantile Exchange, the price of January delivery light, sweet crude oil added $1.53 to $89.32 per barrel. Heating oil prices rose 3.38 cents to $2.4909 per gallon. Reformulated blendstock gasoline prices added 3.25 cents to $2.3418 per gallon. Natural gas prices gained 2.6 cents to $4.443 per million British thermal units.

Added to internal discipline that kept production in check, several OPEC members are seeking to increase production. Venezuelan wants to restore production lost in recent years and host Ecuador is taking draconian measures to boost investment in its conflict-ridden oil sector.

Ecuador seized licenses from Petroleo Brasileiro SA, Noble Energy Inc. and other companies active in the country after they declined to alter contracts. Ecuador hopes to cash in by attracting government-to-government contracts with cash-rich OPEC countries or high net worth corporates from the gulf.

Despite evidence that government-to-government partnerships don't necessarily translate into higher performance in the oil sector, Ecuador seems to be taking the path chosen earlier by Venezuela, with uncertain results for its oil industry.

Ecuador, the smallest OPEC member that returned to the group in 2007 after quitting in 1992, plans to offer licenses for new oil fields in April after forcing companies to switch to service contracts from output-sharing accords. Those who refused to switch, including Petrobras and Noble, lost their concessions, some of which may be up for grabs.

The circumstances in which the concessions became available have made investors -- both private and state -- wary of investment in Ecuador.

Ecuador aims to boost production as early as next year. If successful, additional Ecuador oil could enter a market with low demand, or profit from a substantial price surge.

OPEC members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

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