OPEC Faces Dilemma over Oil Prices

OPEC is happy with oil prices at the current level of US$70-US80 per barrel but this will hamper the global economic recovery and energy demand, consultancy CGES warned. The Organisation of Petroleum Exporting Countries, whose 12 member nations pump about 40% of the world’s crude, meets periodically to set output levels with a view to maintaining revenues and investment levels.

“At present, OPEC is in a position to keep oil prices where it would like to see them but this comes at a cost,” the Centre for Global Energy Studies (CGES) said in a monthly market report. “The cost is that the global economy will recover more slowly and the oil market will not grow as fast as it would have done with more moderate prices.” Traders are fearful that the oil market could be derailed by faltering global economic growth in the second half of 2010.

“Oil demand is rising with economic recovery but fears are growing that the economic rebound is losing momentum in the developed countries,” the influential research group said.
The market has gyrated around the US$70-US$80 level for some time as traders have reacted to data on the outlook for the global economic recovery. “Since early October 2009, benchmark crude oil prices have been trading in a range between US$70 and 80 per barrel, showing no sign of breaking decisively in either direction and receiving few signals from market fundamentals,” the report said.

“As a result, prices have fluctuated with news and sentiment about the robustness of the global economic recovery and what it might mean for future oil demand.” CGES said current price levels allowed oil producing nations to continue investing in new energy infrastructure. “Oil prices between US$70 and US$80 are comfortable for the oil-producing countries and also for the oil industry, which is able to pursue the complex new projects that are needed to offset decline in older fields,” it said. “This level of prices has also proved acceptable to the governments of major oil-consuming countries, as high oil prices help them in their pursuit of environmental objectives.”

However, it added: “The one group that high oil prices do not suit is the oil consumers themselves, the individuals and businesses that have to buy energy in order to heat homes, run appliances and vehicles and fuel industrial processes.” The next formal meeting of Opec to discuss output levels is due on 14 October 2010 in Vienna.- Gulf Times