OPEC set for meeting amid Iran tensions

OPEC meets in Vienna this week to decide on whether to change the cartel's oil production levels in the face of heightened Iran tensions, higher Libyan output and a weak economic outlook. The Organization of Petroleum Exporting Countries, which supplies one third of the world's crude, is Wednesday set to maintain its official output target of 24.84 million barrels per day -- where it has stood for almost two years. But with the International Energy Agency estimating that actual OPEC production, excluding Iraq, stood at 27.32 mbpd in October, the organization may decide to issue a statement promising stricter compliance to its quotas. The Vienna-based cartel meets periodically to set production levels, hoping that its decisions result in favourable market oil prices for its dozen members, which include current OPEC president Iran, oil kingpin Saudi Arabia, Libya, Nigeria and Venezuela. OPEC Secretary General Abdullah El-Badri last week said that current oil prices of around $100 a barrel were "satisfactory," adding that crude supply was adequate -- indicating that its official output ceiling would stay on hold. On Friday, Brent North Sea crude was trading at $107.79 a barrel, while New York's light sweet stood at $98.11. Despite economic turbulence and a pick up in Libya oil output after recent war ravaged its production, crude futures have managed to remain at relatively high levels thanks to geopolitical unrest across the oil-rich Middle East. All eyes at Wednesday's gathering will be on Iran, OPEC's second-biggest oil producer after Saudi Arabia, and whose oil sector is at threat from potential EU sanctions over the Islamic republic's controversial nuclear programme. EU foreign ministers have slapped sanctions on an extra 143 firms and 37 individuals in Iran, after the publication last month of a report on the country's nuclear sector by the International Atomic Energy Agency (IAEA). The ministers also threatened to "extend the scope" of punitive action to strike at Tehran's economic heart, saying the EU would examine measures targeting the financial system, energy and transport sectors by late January. "Assessing the fallout from the Iranian sanctions, OPEC meets with a complex economic, fundamental and political backdrop," said Barclays Capital analyst Sudakshina Unnikrishnan. "The geopolitical context has deepened" since OPEC's last meeting in June, she added. Iran and Venezuela are seen as OPEC's traditional hawks, regularly calling on the cartel to cut production to boost oil prices and consequently their revenues. But last week, Venezuelan President Hugo Chavez said current prices were at a "fair" level. "The talk in town is that the price hawks are not minded to rock the boat and current production levels will continue through next year," said David Hufton, an oil analyst at brokers PVM. "The OPEC hawks appear willing to accept whatever recommendation is put forward by their secretariat, no doubt comforted by a price level that has stabilised at over $100 barrel and in the knowledge that global stock levels have eroded considerably in the second half of this year," he added. Commerzbank analyst Eugen Weinberg argued however that there was still "potential for conflict" at the meeting since Libya was rapidly increasing its oil output. Current Libyan output is "likely to make calls among hawks like Venezuela and Iran to cut back production louder," he said. El-Badri, addressing the World Petroleum Congress in Doha last week, said he expected Libya to return to full pre-war oil production levels by mid-2012. Libya was pumping out about 1.6 million barrels per day before the eight-month rebellion against leader Moamer Kadhafi, who was captured and killed in October. According to Libya's National Oil Corporation (NOC), the country is currently supplying 600,000 barrels per day after production hit a virtual standstill during the conflict. Libya's new government will meanwhile be represented for the first time at an OPEC meeting this week.