Divisions within OPEC signal the group will probably keep itscrude production ceiling unchanged tomorrow as falling prices limitSaudi Arabia's ability to justify a higher quota.

Iran, facing a European Union embargo on its oil exports, andVenezuela have been joined by Iraq, Angola, Libya and Ecuador insaying that global crude supplies are already excessive. Thegroup's biggest producer, Saudi Arabia, is pumping near its highestlevel in three decades and said June 11 that there may be a need toboost the target.

Leaving the production quota unchanged may be the likeliestcompromise because it allows smaller producers to protect revenueafter Brent crude's 23 percent decline since March, whilepreventing a price rally that would curb economic growth. The 12members of the Organization of Petroleum Exporting Countries aremeeting in Vienna a year on from a gathering that ended withoutconsensus, prompting Saudi Oil Minister Ali al-Naimi to say that itwas “the worst” he had ever attended.

“Oil demand remains high, but so do fears of the economy andthat is going to weigh on members' ability to make a decision onthe quota,” Jason Schenker, the president of Prestige EconomicsLLC, a commodity researcher in Austin, Texas, said in an interviewin Vienna yesterday. Brent will average $120 a barrel next year onforecasts of global growth, he said.

Brent crude, a benchmark contract for more than half the world'soil, rose as high as $128.40 on the London-based ICE Futures Europeexchange on March 1. The contract dropped 0.9 percent yesterday to$97.14, the lowest settlement since Jan. 25, 2011, and traded asmuch as 76 cents higher today.

OPEC should raise its output ceiling by 500,000 to 1 millionbarrels a day to keep prices at current levels amid Europe's debtcrisis, two delegates from Middle Eastern member countriessaid.

Opposition from other nations, such as Iran and Venezuela, willprobably result in the group's collective output limit remainingunchanged, according to the delegates, who declined to beidentified because a final decision will be made tomorrow.

The June 2011 gathering broke down because the Saudis and threeother Gulf Cooperation Council nations were ready to supply moreoil, while six members opposed an increase in productionquotas.

'Not so Positive'

Prospects for Europe's economy are “not so positive” and willdetermine short-term market fundamentals, al-Naimi said today inVienna. He said on June 11 that there may be a need for a higheroutput ceiling.

While history shows that OPEC has always cut production in thepast 10 years when faced with a price decline of more than 10percent in the three months prior to a conference, the consensusamong analysts is that prices are still too high to persuade allmembers to opt for such action this week. All 20 traders andanalysts surveyed by Bloomberg News last week said they expect thegroup to keep its official daily production ceiling at 30 millionbarrels a day.

OPEC is collectively pumping 1.58 million barrels a day morethan its target, according to a monthly report from its secretariatthat uses secondary sources such as analysts and news agencies foroutput estimates.

“There is a big surplus in supply, and there is a bigdecline in prices, and this does not serve either the producers orthe consumers,” Abdul Kareem al-Luaibi, Iraq's oil minister said inan interview in Vienna yesterday. “If the 30 million barrel-a-dayproduction was respected, prices would have been stable,” saidal-Luaibi, who also holds OPEC's rotating presidency.

Saudi Arabia boosted output to 9.92 million barrels a day in Mayfrom 9.88 million barrels a day the previous month, according toOPEC estimates. The kingdom said it had cut production to 9.8million from 10.1 million barrels in April.

Al-Luaibi said he supported “price stability” amid productionoutages in Syria and Yemen and tightening sanctions on Iran. An EUban on buying Iranian oil takes effect on July 1.

Mohammad Ali Khatibi, Iran's OPEC governor, criticized membersof the oil producer-group, including Saudi Arabia, for boostingproduction and seeking to replace Iranian crude on the globalmarket, Press TV reported on June 9.

Saudi Arabia, Kuwait and the U.A.E. are “the biggest violators”of the OPEC output quota, the state-run news agency said, citingKhatibi. “It isn't right that two or three nations compensate for acountry that is targeted by sanctions,” Press TV reported Khatibias saying. OPEC members shouldn't work against each other, the newsagency quoted him as saying.

OPEC said the outlook for oil consumption was clouded byEurope's debt crisis and slowing growth in emerging nations.

“Ongoing challenges to world economic recovery have led to evenlarger uncertainties for oil demand in the second half of thisyear,” the group said in its monthly report yesterday. “High OPECcrude oil production standing above market requirements providesfurther confirmation that the market remains amply supplied.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.