x Abu Dhabi, UAETuesday 16 January 2018

Opec mulls an increase in level of oil production

Tomorrow Opec has the chance to create what climate negotiators skirted around earlier this week - a meaningful agreement.

Oil producers have the chance tomorrow to create what climate-change negotiators failed to present this week in Durban - a meaningful agreement.

Opec representatives, including from Saudi Arabia and the UAE, meet in Vienna tomorrow to discuss production targets. A key question is whether to raise the group's formal pumping target closer to its actual production of about 30 million barrels per day (bpd).

Their negotiations come just days after UN climate-change negotiators cobbled together a pledge from nearly 200 nations to come up with a plan to come into force in 2020 to curb carbon emissions. While lauded as the first global warming accord to win the backing of the US, China and India - the world's top polluters - critics of the deal called it toothless.

"Right now the global climate regime amounts to nothing more than a voluntary deal that's put off for a decade," said Kumi Naidoo, the executive director of Greenpeace International. "This could take us over the 2 degree [Celsius] threshold where we pass from danger to potential catastrophe."

The negotiators had watered down some of the climate pact's wording to appease India, and indirectly China and the US.

As oil ministers prepare for tomorrow's summit, their priority is unity, as it was in Durban. Ali Al Naimi, the Saudi oil minister, has indicated the kingdom is in no rush to set fresh quotas in spite of pumping at its highest levels in three decades.

Meanwhile, Abdalla El Badri, the Opec secretary general, has said current oil prices - US$107 a barrel for Brent crude yesterday - had been pushed up by speculation rather than supply scarcity.

"The current price is comfortable for producers and consumers," Mr El Badri told a forum in Doha last week. Expectations are for Opec to stick with its production quota, which has remained unchanged since the group pulled supplies off the market in 2008 to halt a drop in oil prices.

The 11 members under Opec's quota pumped 27.6 million bpd last month, more than 2.8 million above the official target. Iraq, which produces 2.7 million bpd, is not subject to quota.

That gap between promise and reality is set to expand unless Iran's production is severely constrained by western sanctions or Gulf producers opt to lower their pumping to make room for revived Libyan supplies.  Africa's third largest oil producer raised production to about 500,000 bpd last month.

However, Saudi Arabia and other Gulf producers may not be too eager to give up the market share, especially given that oil revenues are expected to sustain the tens of billions of dollars in public spending committed to in the wake of the Arab Spring.

The pressure for a united front is also the result of an Opec meeting in June where price hawks and doves failed to reach a consensus.