18. May 2009

OPEC president says tighter compliance crucial

Tighter compliance with OPEC's supply targets is crucial to stabilising the oil market, the group's president said on Monday, less than two weeks before the group meets to set output policy.

Jose Botelho de Vasconcelos also said the economic downturn was proving deeper and more widespread than expected and oil's fundamentals of supply and demand remained weak. OPEC meets on May 28 in Vienna.

"Adherence to production agreements with better compliance remains crucial to our efforts to stabilise the oil market," Vasconcelos, who is also Angola's oil minister, said in a statement.

The comments follow reports that OPEC raised oil supply slightly in April, a sign that rising prices could have prompted members to relax adherence to supply curbs totalling 4.2 million barrels per day. [OPEC/M]

While OPEC's most recent supply cut, agreed in December, has been effective in reducing a "substantial" imbalance, this would take time, the Angolan minister said.

"It should be borne in mind that, since the economic downturn is deeper and more widespread than expected, this is turning out to be a drawn out process."

Oil has rallied to around $58 a barrel from a near five-year low of $32.40 reached in December. The OPEC president echoed the view of many in the oil market that oil fundamentals were still weak. "The bottoming out from the recession is still ahead of us, since all the major economies are experiencing serious contractions with a significant fall in global trade," he said.

"This is best evidenced in the persistence of weak fundamentals with continued demand erosion and very high oil stocks on land and floating." (Reporting by Henrique Almeida; writing by Alex Lawler; editing by Sue Thomas, REUTERS)

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