Opec to keep output at current levels

 RIYADH: With crude markets undergoing a massive transformation Opec had little option but to maintain output at current levels. As prices drift downwards, the month-long rally in the crude markets is finally subsiding.
The correlation between financial markets and crude, too, continued to impact the process. Strengthening dollar and the worries on the state of the Greek economy with its drag down effect on the global scenario – all cornered the crude markets to finally wink.

With little prospect of aid pouring into Greece from the Euro zone, the Euro, too, fell against the greenback, as investors sought the safer haven of the dollar over commodities.

In the meantime, fundamentals were also adding up to the woes. A report from the UK consultancy, Oil Movements, shows seaborne oil exports by Opec, excluding Angola and Ecuador, was set to rise by 70,000 barrels per day in the four weeks to April 3.

And in the meantime, the Opec has been pumping oil well above its output targets. And in the circumstances if the prices could be maintained at the current levels, this was to be a major achievement, for the prices were a level, that was conceded to be fair, for both the producers as well as the consumers, by none else than King Abdullah himself months back.

Even Iran and Venezuela – the so called hawks within the Opec, too appeared pleased with prices hovering around the $80 a barrel mark.

Opec also had an eye on the ground realities. While the global economy is clearly rebounding from the recession, with continued positive signals coming from the manufacturing and services sectors, serious threats remain. At the same time, the US inventories were also reported to have risen last week for a seventh week to 344 million barrels. “We are still seeing oversupply in the western economies,” Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney, said. “US fuel demand is looking slightly better than a year ago, but it’s far from being a tight market.”

And producers were also moving ahead with new investments (in the sector) too. Oil production capacity continues to edge up in many places - Iraq, Angola and offshore Nigeria. The biggest prospect for additional Opec oil though currently lies with Iraq. Abu Dhabi and Kuwait are also planning production projects. Libya, too, is proceeding with plans to bolster production capacity.

Overall, Opec is to add 12 million barrels to its daily production capacity by 2015. And the gains would exceed the expected growth in demand, says the IEA. Drilling activity within the Opec, too, is going on at the fastest rate in 2 1/2 years. The 12-nation group boosted its number of oil and gas rigs by 8.4 per cent in January and February, the biggest two-month gain since June 2007, Baker Hughes Inc. reported.

Nigeria increased its oil rigs the most among Opec member states, boosting the count to 12 from seven. Opec as a group has taken on an extra 22 rigs this year, raising its total to 283, as increases in Africa compensate for a reduction in Saudi Arabia and Venezuela.

And hence despite the Opec output restraint there should be little upward price pressure (on crude markets) from market fundamentals, the Monthly Oil Report of the London-based Centre for Global Energy Studies says in a report to be officially released on Monday.