Opec decision likely to push oil prices above $100 this week

Oil prices could finally breach the $100 barrier this week, deepening fears for the West’s economic prospects, if the Opec oil cartel confirms an expected decision at its extraordinary meeting in Abu Dhabi on Wednesday not to raise crude production, analysts believe.

Opec is under pressure from Western oil-consuming nations to take urgent action to rein back prices from their recent record highs, amid mounting concern that the cost of crude will undercut already faltering growth in developed economies while simultaneously stoking inflation.

Close observers of the cartel believe that it will spurn the West’s pleas and keep its output pegged, because any increase ordered this week would not come through until towards the end of the winter in the northern hemisphere. Opec may fear that by that time any extra crude production could risk oversupplying a market in which demand will be cut not only by warmer weather but by an impending slowdown in leading Western economies.

Veronica Smart, an analyst with the Energy Information Centre, a leading consultancy, said that this delayed effect meant that a move this week by Opec to boost output would probably be viewed as “too little, too late”.

She said that the cartel generally disliked raising production ahead of the second quarter because it tries to avoid any build-up of oil stockpiles around that time as part of its pricing strategy.

Simon Wardell, of Global Insight, an independent analysis group, shared Ms Smart’s view: “With the economic problems hanging over the global economy now, Opec’s probably thinking that demand [for oil] is more likely to go down than up in terms of current forecasts, and they will probably want to keep things steady [on output].” Expectations that Opec will stay its hand were reinforced by comments from senior cartel figures.

Rafael RamÍrez, the Venezuelan Oil Minister, said yesterday: “We expect that the market will maintain the same prices that we have seen this year. Probably, if there is not geo-political tension, prices should be around $100 a barrel.”

Ali al-Naimi, the Saudi Arabian Oil Minister, said that present oil stocks were in a “very comfortable range”.

by Gary Duncan, Economics Editor for The Times Online (UK)

NVDL: Is oil at $100 as much of a brou ha ha as the Y2K bug? You'd think so based on the disdain stock markets have for fuel prices. Unfortunately, reality is much more simple. Essentially every time there is a hike in petrol prices (that's prices you pay to fill up your tank), the money you have left for everything else gets less. Not only that, everyone else has less money, and the costs also get transferred to everything else: food, transport and all the rest. We keep forgetting that cheap oil underpins EVERTHING THAT WE DO. Thus, every change in these prices have critical impacts, particularly for those in debt, and the poor.

When the number of poor (economic losers) increases, so do social ills such as unemployment and crime. That's not good for anyone.