“When OPEC oil ministers meet in Vienna Wednesday, they are all but certain to agree to maintain official curbs on their oil production, despite relatively high prices and some expectations for stronger demand in the months ahead,” writes Thaddeus Herrick and Bhushan Bahree in today’s The Wall Street Journal.

“But behind the scenes, members of the Organization of Petroleum Exporting Countries already have been boosting their production, albeit unofficially. The International Energy Agency reported that OPEC production rose last month by 290,000 barrels a day to 23.1 million barrels a day, or 1.4 million barrels a day above its self-imposed ceiling, with quota cheating occurring in Saudi Arabia, Algeria and Venezuela, among other countries. Such nonofficial output increases are helping to keep a lid on world oil prices, allowing the cartel to reason that market fundamentals don’t necessitate an increase in output.”

“Some OPEC members cheat on their quotas because they need the cash. Also driving the cartel are continued worries that the organization has been losing world-wide market share to non-OPEC nations, especially as these nations now begin to raise their own output.”

“Last week, Norway, the world’s third-largest exporter, said it is ending its voluntary production curbs in July, and oil-rich Russia has indicated that it, too, will make production decisions independent of OPEC. Both nations agreed last winter to restrain exports to help OPEC prop up oil prices, though the cuts they made were minimal.”

“The confluence of issues presents a somewhat complicated backdrop to what appears to be a straightforward meeting.”

“Growth in demand has yet to materialize this year, and OPEC is betting that its reduced output can hold prices at about $25 a barrel until the fourth quarter, when oil use typically rises because of winter heating needs in the Northern Hemisphere. Then, presumably, the cartel would raise output.”

“If demand picks up, as many economists and analysts predict, OPEC runs the risk of price rises this summer, which could create political flak for OPEC and undermine the economic growth on which it counts to sell more oil. The Petroleum Industry Research Foundation says demand could be up as much as two million barrels a day by year’s end and predicts markets could tighten as early as July; the world consumes about 76 million barrels a day. “The market will be demanding more oil,” says Larry Goldstein, president of the New York group.”

“A more problematic scenario for OPEC would be continued lagging demand. The International Energy Agency, based in Paris, recently cut its forecast for oil-demand growth in the third quarter 30% to 700,000 barrels a day, but left unchanged its prediction of 420,000 barrels a day in growth for the year, an increase of less than 1% over last year.”

“After hitting a high of nearly $30 a barrel in mid-May, the U.S. benchmark crude fell to about $24 in mid-June, in part because of weak demand for jet fuel. What’s more, gasoline prices fell slightly at a time when they usually surge as the pickup in driving and a changeover to summer-grade gasoline went more smoothly than in most years.”

“‘We overestimated the tightness that would be typical now,’ says Dave Costello, an economist with the Department of Energy’s Energy Information Agency. While U.S. gasoline inventories are at year-earlier levels, crude-oil inventories are above those for the previous year.”

“Falling prices would cause OPEC to pay more attention to production from Norway and Russia — and from its own members. Saudi Arabia and Venezuela both produced well over their quotas, but Algeria was the largest quota buster by percentage terms, producing 820,000 barrels of oil a day in May, about 18% above its limit of 693,000 barrels a day, according to the IEA.”

“Countries such as Algeria need cash, but they are also increasing their output capacity through foreign investment. Algeria’s output capacity, for example, is expected to rise about 14% to about 1.2 million barrels a day next year with help from Anadarko Petroleum Corp., Houston, which has poured $900 million into exploration and production in Algeria since 1991.”

“‘If they see the prices falling, they will cooperate,’ predicts Shokri Ghanem, OPEC’s former chief economist and now Libya’s minister of economy.”

“OPEC has generally avoided dissension in recent years under the leadership of Ali Naimi, Saudi Arabia’s oil minister. But last year, the organization went to the brink of a price war with Russia, the world’s top exporter. Norway’s decision to raise production indicates that unity between OPEC and non-OPEC countries may be harder to come by.”