OPEC optimistic on recovery of oil market

The decision of OPEC’s Council of Ministers this week reflected the satisfaction of the organisation’s member countries with the current crude oil price range of 65 to 70 dollars for the barrel. This includes the steady prices for the North Sea crude and the US light crude within the same range, since late July.

This was evident in the organization’s decision not to change the production rate, and to maintain it at 24.845 million barrels per day, in addition to the harmonious statements given by the ministers shortly before their meeting, and the fact that there were no contradictory stances made, an otherwise oft-seen practice at OPEC’s meetings.

In fact, OPEC is optimistic about the increased oil demand with the approaching end of year, and the beginning of next year, coupled with the possibility of the near end of the global economic crisis. In this regard, initial statistics show an increase in oil demand since July 2008 – that is, since the exacerbation of the global financial crisis. As such, there were signs of this increased demand in Asian countries in particular, and in the United States as well, albeit at a much milder rate.

Nevertheless, there are two disadvantageous factors to the future of oil prices that are still at play – although views may differ on their importance and their impact on the prices in the foreseeable future.

The first of these factors is represented in the high reserves of crude oil and petroleum products that the oil companies possess, estimated to last 60 days instead of 50 days, according to a prevailing belief within OPEC.

The second issue meanwhile, is the commitment of OPEC’s Member States to their assigned production quotas, which has begun to gradually fade. This in fact, may very well create a major problem should the markets become any weaker. The information available in this regard indicate that the current production rate of OPEC’s member countries – that are participating in production quotas- is about 26.1 million barrels per day, instead of the production ceiling agreed upon of 24.845 million barrels per day. What renders some apprehensive therefore, is that this production rate is in excess of the rate agreed upon, which, in addition to the current global reserve levels, may lead to a deterioration of prices in case the global economy does not rapidly and dramatically recover.

The fact of the matter is that there are opposing points of view about when the global economy will begin to recover, and what the extent and rate of this recovery will be. These differing questions and viewpoints are being voiced inside both OPEC and the other global economic forums.

Also, another important question remains: What is the importance of the price range currently desired by OPEC, which would help the process of the global economic recovery, rather than hindering it?

Tags:  oil market, OPEC, recovery