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OPEC host Angola least compliant with supply curbs

By on December 18, 2009

Angola, holder of the OPEC presidency and host of an OPEC meeting next week, is the least compliant with the group’s agreements to limit oil output, according to Reuters calculations.

That irony will not be lost on other members of the Organization of the Petroleum Exporting Countries as they head to the Angolan capital Luanda for Tuesday’s meeting to review their oil output policy.

“I don’t want to say pressure, but there will be a request from the conference for more compliance,” said an OPEC delegate. “This is the main thing that the meeting will concentrate on.”

OPEC agreed last year to curb supply by 4.2 million barrels per day (bpd) as recession eroded demand. Compliance with the accord has slipped to 60 percent from 80 percent earlier this year, alongside a recovery in oil prices.

Past disputes within the exporter group over how much oil members are pumping and their compliance with agreed limits have led to internal squabbling which has undermined the group’s credibility with the market.

But analysts say as long as oil prices hold firm, the chances of compliance rising are limited. Oil was trading at above $71 Friday, within the $70-$80 range that OPEC members have repeatedly said is high enough for producers and low enough to nurse a still fragile world economy.

“The compliance will be reviewed but given the current price level holding above $70, the incentive for greater cohesion around the targeted cuts is reduced,” said Harry Tchilinguirian of BNP Paribas.

ANGOLA LEAST COMPLIANT

After nearly three decades of civil war, Angola desperately needs to maximise its own oil output to help rebuild infrastructure.

One of OPEC’s newest recruits, Angola says its production target is 1.656 million bpd, not the 1.52 million bpd included in an OPEC internal document in December 2008 which has been widely taken to be its output limit.

Based on the lower of those, the country has actually increased production by 80,000 bpd rather than lowering output by 240,000 bpd as called for under past OPEC agreements, putting its compliance in negative territory.

State-run Sonangol pumps Angola’s oil in partnership with a number of foreign oil companies, including Total, Chevron and Exxon Mobil keen to see a return on their investment.

Dozens of new Angolan oilfields will come on stream between 2011 and 2015, suggesting compliance will worsen further without an increase in Angola’s OPEC target.

That would involve wider talks in OPEC about individual output levels — an issue analysts including Tchilinguirian said may surface given Nigerian production is also rising after a lull in militant attacks on the oil industry.

After Angola, the least compliant members in percentage terms, according to Reuters data, are Nigeria, then Iran and then Venezuela. Gulf members Saudi Arabia, Kuwait and the United Arab Emirates are showing the highest rates.

In volume terms, Iran is pumping the most above target, followed by Angola, Nigeria and then Venezuela.OPEC does not provide official production figures and uses secondary sources to monitor its output, a legacy of past disputes about how much oil members said they were pumping.

The OPEC delegate said oil prices were ignoring rising supply and soft demand for now, but was worried weak compliance could hurt prices if demand did not recover and also that it ran against OPEC’s decision.

“The price is good, but it is ignoring all fundamentals,” said the delegate. “There will be concern about compliance because there was an agreement.”

Reuters.

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