OPEC oil deal puts Saudi back in charge

VIENNA (Reuters) - OPEC oil producers on
Wednesday sealed their first new output agreement in three years in a
deal that settles a 6-month-old argument over supply policy firmly in
Saudi Arabia's favor.
The Organization of the Petroleum Exporting
Countries agreed a target of 30 million barrels daily, ratifying
current production near 3-year highs. It did not discuss individual
national quotas.
The deal vindicates Saudi Arabia after its
proposal to raise output in June to stem rising prices was rejected by
price hawks led by Iran, Algeria and Venezuela.
"For the Saudis it's a fantastic decision," said Jamie Webster of Washington consultancy PFC Energy.
Saudi
said it pumped 10 million barrels a day last month, 25 percent above
its old OPEC quota, in what Gulf delegates said was a demonstration of
strength to the price hawks ahead of the meeting.
In theory the
agreement caps output for all 12 OPEC members for the first half of 2012
at levels that should permit a modest rebuilding of lean global
inventories.
"We're not going to bypass it, we're going to adhere to it," promised OPEC Secretary General Abdullah al-Badri of the new supply limit. "Saudi Arabia will abide by this decision for sure."
That
will depend on whether or not Saudi and its Gulf Arab allies decide to
ease back supply as post-civil war Libya heads towards full production
or keep the taps open to drive oil below $100 a barrel.
Saudi Arabia did not allay doubts about its intentions.
"If Libya increases it doesn't necessarily mean Saudi will cut," said Saudi Oil Minister Ali al-Naimi. "We don't react to that, we react to market demand," he said.
Oil analysts warned that without defined individual national quotas, leakage above the new limit was very possible.
"Someone
has to cut back to accommodate Libya, that has to be done," said
analyst Lawrence Eagles of JP Morgan. "As always with OPEC the proof
will be in the pudding. How closely will they stick to the new limit?"
"The
whole organization has to be at 30 million so if someone goes up
somebody else should come down. But it's like anything when you divide
responsibility -- it often ends up falling through the cracks," said
Webster of PFC.
Those concerns helped undermine oil prices.
London Brent lost $4.67 to $104.83 a barrel, down from a year-high $127
in April. U.S. crude fell $5.19 to near $94.95.
Rising supply
from Saudi Arabia and its Gulf Arab neighbors Kuwait and the United Arab
Emirates has kept a leash on oil prices as Riyadh seeks to help nurture
global growth by keeping fuel costs under control.
HAWKS WANT NO LESS THAN $100
OPEC's price hawks, all of whom already pump at full capacity, want to keep prices above $100.
"We think the present level is appropriate for producers and consumers," Algerian Oil Minister Youcef Yousfi said of prices.
"Prices are reasonable," said Iranian Oil Minister Rostam Qasemi.
The
Gulf Arabs would prefer prices that don't hinder economic growth while
meeting their budget and oil investment needs. The UAE said recently
that $80-$100 was reasonable.
"Saudi Arabia is the central banker
of the oil market and the decision that they will bring more oil to the
market is definitely a good one," said Fatih Birol, chief economist at
consumer body the International Energy Agency.
World oil
inventories should now rise, boosted by Libyan oil output that hit 1
million bpd this week on the way back to pre-war output of 1.6 million.
OPEC's
secretariat calculates that 30 million barrels a day from the group
will meet demand in the first half of the year and build stocks by
650,000 bpd.
According to the U.S. Energy Information
Administration that would lift inventories among industrialized OECD
nations from 56 days of OECD demand now to 60 days by the middle of
2012.
OPEC next meets on June 14. Badri said OPEC would be ready
by then to tackle the tricky issue of re-establishing individual quotas.
That
could prove difficult. Saudi Arabia and others who have seen market
share rise in the past two years are unlikely to not cede ground on
quotas to those who have lost share and cannot pump more.