It had appeared to be a done deal that OPEC would leave output unchanged at this week's meeting, but that assumption is now debatable as news has surfaced that Saudi Arabia is supporting an increase in oil production. As recently as yesterday Saudi Arabia, OPEC's accepted leader and top producer, had kept its views to itself, but according to Bloomberg, the country has sided with other OPEC countries that are proposing to increase output in order to combat high oil prices. The article did not specifically state what increase Saudi Arabia was suggesting, but some of the group's Persian producers have argued for a 500,000 barrel increase.
With Saudi Arabia now supporting a production increase, the outcome of this week's meeting is much cloudier. The news that the country was in favor of an increase was leaked to reporters by Iraq's oil minister before meetings got under way today. The decision to change output is going to be a highly debated one as Iran, Venezuela, Algeria and Libya have all publicly stated that they will not support increasing output.
With oil prices creeping up to record high levels it would make sense that OPEC would come through and boost output a little, but the main concern that the group is facing is the increasing troubles with America's economy. There have been some undeniable signs recently that America could slip into a recession, and this would drastically reduce the demand for oil on a world-wide basis.
The last thing that OPEC wants to do is open the taps to more oil supply right before the market starts demanding less of the precious crude. As The New York Times is quick to point out, OPEC has made the mistake of a poorly timed production increase before. Looking back in time to when the Asian market collapse took place, OPEC decided to boost its output just as the crisis was getting started, and what resulted was a massive oversupply of oil which pushed prices all the way down to $10 a barrel.
Definitely a lot to discuss this week, OPEC has several factors that they are going to have to try to deal with. High prices, a possible American recession on the horizon, the upcoming high demand winter heating months ... definitely a lot to try to digest and analyze.
We will have to keep a close eye on what comes out of this week's meeting, a lot is riding on the group's decision.
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Reader Comments (Page 1 of 1)
9-11-2007 @ 10:46AM
bishko said...
So far all signs are pointing to the fact that OPEC is confident that no increases will be necessary at this point, and that oil supplies are more than adequate where they are.That was yesterday
Today:
With Saudi Arabia now supporting a production increase, the outcome of this week's meeting is much cloudier. The news that the country was in favor of an increase was leaked to reporters by Iraq's oil minister before meetings got under way today.
Why dont u just flip a coin......
9-11-2007 @ 11:10AM
Michael Fowlkes said...
Bishko,
You are right in your comment. When we took a look at the current OPEC meeting yesterday it did seem as though we would not get any production increases. All signs were pointing to leaving output unchanged and all analysts were expecting that this would be the case.
Now with Saudi Arabia joining the list of countries that are in favor of an increase there is no telling which side will win out.
You are right that at this point we could just flip a coin... there is no telling what news we will get out of OPEC now
Michael