Opec will call on its members to comply with their existing commitments to reduce oil production before making any additional cuts to output, Abdalla el-Badri, secretary general of the cartel, tells MEED.
The organisation is seeking to increase compliance among member states from 80 per cent to 95 per cent, and will put further pressure on members currently flouting the quotas at its next meeting on 15 March.
Full compliance with Opec targets would equate to a further cut of 897,000 barrels a day (b/d) in oil production among member states, says El-Badri, which could help shore up the oil price.
“If we do not have 95 per cent compliance [by the time of the next Opec meeting], we will urge those members who are not in compliance to do so,” El-Badri told MEED on the sidelines of the Chatham House Middle East Energy conference in London on 9 February. “The market is oversupplied. If we have 95 per cent compliance and the market is still not moving, we need to look at another option.”
Opec says it is using data from six independent sources to monitor compliance with production cuts. Two of the six sources have reported that 80 per cent of members are sticking to their targets.
Opec has announced production cuts totalling 4.2 million b/d since September 2008. But despite this restriction in supply, prices fell to $30.28 a barrel on 23 December, the lowest level for more than five years, down almost 80 per cent from the peak of $147 a barrel in July 2008.
“We maybe lost control [of prices] temporarily, but we are getting it back,” said El-Badri. “[But] our function is not to control anything, it is just to balance the market.”
According to El-Badri, a rebound in prices will depend largely on the pace of the global economic recovery, rather than cuts to production. “We know that the production cuts will not raise prices very high,” he said.
“It depends on the stimulus packages for the UK, US, China, Japan and the EU. How quick the recovery is depends on how fast the packages are spent.”
El-Badri also revealed that the organisation would be satisfied with an oil price of $50 a barrel for the first six months of the year, but will target $70 a barrel after that.
“In the first half of 2009, an oil price of $50 a barrel may be ok because of global economic problems – until July or August, and then the price should pick up, if we want to invest,” he said.
“If prices stay low we will not invest. I do not see that happening below $70 a barrel. The new crude is not coming from the same easy places as in the past. We are not going to spend $60 a barrel to find oil and then sell it for $40 a barrel.”
Opec’s efforts to increase quota compliance have been well received in the industry.
“They will put a lot of pressure on those countries that fail to comply,” says one senior oil trader.