OPEC seeks to flex its muscles
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OPEC seeks to flex its muscles

OPEC seeks to flex its muscles

With huge economic expansion under way and salary increases to be paid for oil producing economies increasingly need to see revenues generated from petroleum prices well above $50 a barrel.

    But with crude prices dropping at one point in November to below $55 a barrel compared to a high of $78 three months earlier alarm bells are beginning to sound among leading exporters.

    Global demand for oil is forecast to rise just 1.5 per cent in 2007 largely because of a perceived slowdown in the American economy. The IMF forecasts US gross domestic product rising 2.9 per cent next year which would be down on the 3.4 per cent growth estimated for 2006.

    This autumn's price fall for crude and other commodities has been caused by heavy fund selling across American commodity markets reflecting concerns over the predicted economic slowdown in the world's biggest oil consumer.

    Higher inventories

    But there are other factors. The oil price dip also reflects the higher than expected level of oil inventories held in the US built up partly through fears of a repeat of last year's devastating hurricane season.

    Relatively mild weather and prospects for a warmer winter in America have for the time being lessened demand for fuel oil. Such sentiments could change very quickly as the reality of future events unfold.

    Nevertheless for the moment there is concern among leading producers. Saudi Arabia's Petroleum and Mineral Resources Minister Ali Al Naimi has described world inventories as very high and said that "the market is not in balance."

    Some believe that exposed hedge traders have exacerbated price falls. Others point out that market is more confident about oil supplies and has also become more immune from what-if speculation about political trends and conflicts in the Middle East none of which have succeeded in cutting the flow of oil from the region.

    In an effort to rally benchmark prices the Organisation of Petroleum Exporting Nations agreed cuts of 1.2 million barrels-per-day at the start of November.

    OPEC may cut another 500,000 b/d from production at its next meeting due to be held in the federal Nigerian capital of Abuja on December 14, according to Venezuela's Oil Minister Rafael Ramirez.

    $60 target

    It seems that after a lengthy period of quiescence the organisation is shaping up to be much more aggressive in maintaining what its members believe should be the appropriate balance between demand and supply of crude oil. OPEC's Nigerian president Edmund Daukoru has Stated "$60 will not hurt the world economy."

    The biggest dilemma for the 46-year old body is that non-member producers notably Russia, Mexico and Angola are not party to such cuts. OPEC controls only about one third of world crude production.

    For OPEC to exercise the muscle it once had it will need to reach understandings with other producers on output levels that all the major players will adhere to. Some consider that prices may have to drop much further for that to happen in reality though.
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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