OPEC oil producers on Wednesday agreed their first new production limit in three years in a deal that settles a 6-month-old argument over output levels in Saudi Arabia's favour.
The Organization of the Petroleum Exporting Countries agreed a new supply target of 30 million barrels daily, roughly in line with current production. It did not discuss individual national quotas.
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The agreement caps output for all 12 OPEC members for the first half of the year, keeping supply near 3-year highs -- enough to rebuild lean global inventories.
"We're not going to bypass it, we're going to adhere to it," OPEC Secretary General Abdullah al-Badri said of the new limit.
Higher supply from OPEC, mostly from Saudi Arabia and its Gulf allies, has kept a leash on oil prices. Brent traded near $108 on Wednesday, down from a year-high $127 in April.
When OPEC met in June a proposal from Saudi for higher supplies was rejected, leaving Riyadh and its Gulf allies free to compensate for Libyan output lost to civil war.
Riyadh says it pumped 10 million barrels a day last month, its highest in decades in what delegates said was a demonstration of strength to the rest of OPEC.
Now Saudi must decide whether to cut back to make room for rising Libyan output or keep the taps open to bring oil prices down below $100 a barrel.
"Someone has to cut back to accommodate Libya, that has to be done," said analyst Lawrence Eagles of JP Morgan. "As always with OPEC the proof will be in the pudding. How closely will the stick to the new limit?"
"The main issue for OPEC now is to accommodate rising Libyan production. If the Saudis want to protect prices and maintain spare capacity - an issue which worries the market - then they would need to cut back," said Amrita Sen of Barclays Capital.
"Iran raised no obstacle because they needed a deal and the deal effectively maintains current status quo."
LIBYAN OUTPUT WON'T GUIDE SAUDI POLICY
Price hawks Iran, Venezuela and Algeria, all of whom already pump at full capacity, failed to get a commitment from Saudi and its fellow Gulf producers to make room for the restoration of Libya's supply
"If Libya increases it doesn't necessarily mean Saudi will cut," said Saudi Oil Minister Ali al-Naimi.
"We don't react to that, we react to market demand," he said.
The price hawks want to keep oil prices above $100 a barrel.
"We think the present level is appropriate for producers and consumers," Algerian Oil Minister Youcef Yousfi said of prices.
"Prices are reasonable," said Iranian Oil Minister Rostam Qasemi.
Saudi and other Gulf producers would prefer lower prices to help nurture global economic growth. The UAE said recently that $80-$100 was preferable.
"Saudi Arabia is the central banker of the oil market and the decision that they will bring more oil to the market is definitely a good one," said Fatih Birol, chief economist at consumer body the International Energy Agency.
With Libyan supplies rising, world oil inventories should increase if OPEC maintains output near current levels.
OPEC's secretariat calculates that 30 million barrels a day from OPEC will meet demand in the first half of the year and build stocks by 650,000 bpd.
According to the U.S. Energy Information Administration (EIA) that would lift inventories among industrialised OECD nations from 56 days of OECD demand now to 60 days by the middle of 2012.