Opec's decision to keep its output quota unchanged on Thursday throws the onus on the group's biggest producer, Saudi Arabia, to cut supply should crude prices extend their drop below $ 100 a barrel.

The Organisation of Petroleum Exporting Countries would need to reduce output by 1.6mn bpd to comply with its targeted ceiling of 30mn bpd, secretary-general Abdalla El-Badri said on Thursday. Increased production from Saudi Arabia has been blamed for falling prices by members including Iran, whose own exports are set to drop as a European Union embargo starts July 1.

Opec hasn't specified which nations should cut supply, Kuwait’s minister said yesterday.

“It puts some of the onus on the Saudis, but at the end of the day, they’re going to remain very responsive to what happens in the world market,' Jason Schenker, president of Prestige Economics, a commodity researcher in Austin, Texas, said in an interview in Vienna on Thursday. Iranian supply will 'come off the market with the full implementation of the embargo and that could push the number down toward 30mn,” he said.

Saudi Arabia has led the surge in Opec's output this year, as Brent crude prices rose in March to their highest since July 2008 on concern sanctions against Iran will disrupt Middle East supply. Since then, signs that Europe's debt crisis will erode fuel demand have driven the price back below $ 100, a level favoured by Saudi Arabian Oil Minister Ali al-Naimi.

Thursday gathering was strained by tensions after Iran complained that other members were taking their customers as the EU boycotts its oil, warning that Saudi Arabia's higher output risked causing an 'imbalance' in the market. Saudi Arabia’s al-Naimi suggested at the start of the week that Opec may need to increase the ceiling to account for increased demand in the second half of the year and help ease the burden of high prices on consumers.

Saudi Arabia has bolstered output by 11% in the past year to 9.9mn bpd last month, according to data compiled by Bloomberg. While Opec no longer sets individual national quotas, by boosting output to a three-decade peak, Saudi Arabia has done the most to push total Opec supply above the target. As Libyan output returns to normal levels after last year’s revolution, there’s less need for greater Saudi supply, Schenker said.

While most Opec ministers highlighted the current excess supply, some including Qatar’s Minister of Energy and Industry HE Dr Mohamed bin Saleh al-Sada said a portion of that would be absorbed by increased demand later this year. The Opec secretariat's own analysis in a monthly report showed demand for the group’s crude rising to 30.9mn bpd next quarter from 29.3mn currently.
'Saudi Arabia was allegedly asked by other members to cut production and adhere to the overall ceiling,' Vienna-based researcher JBC Energy GmbH said in a report yesterday.

“Due to the lower prices and the massive global stock build, we forecast that Saudi Arabia will decrease production in the second half to 9.5mn bpd.”
Some analysts doubt Saudi Arabia will restrain production as readily as Iran and Venezuela would like.

'No, Saudi Arabia doesn't have to cut production,' Bill Farren-Price, chief executive officer of Petroleum Policy Intelligence, a Winchester, England-based consultant, said in an interview in Vienna on Thursday. 'It will continue to do what it has been doing until now: meeting customer demand. If customer demand drops, then they will cut back accordingly.'

Kuwaiti Oil Minister Hani Abdulaziz Hussain said yesterday when asked if his country would be reducing output that “there is no talk of any particular country' cutting. The group's agreement is a collective one, he said, adding that 'it’s more of a wait and see.'

Iran pumped 3.2mn bpd last month, according to Bloomberg, as the EU ban nears and additional US sanctions on Iran’s banking sector inhibit purchases from some non- European nations. Full implementation of the measures will 'ultimately lead to a cut of some 1mn bpd in Iranian supplies' in the second half of the year, the Paris-based International Energy Agency said in a May 13 report.
Various waivers that the US has granted to some of Iran's customers means that “perhaps the impact will only be 400,000 bpd this summer instead of 800,000, but it’s still a loss,' according to Chakib Khelil, a former Algerian oil minister who held the Opec Presidency in 2008.

“The surplus production that was used to cool the geopolitical tensions early in the year isn’t required now, it's coming off the market,' Schenker said.
The 12 members of Opec are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE and Venezuela.