OPEC's Ministers Keep Oil Output Unchanged

Posted Dec 22nd 2009 12:00PM by Connie Madon
Filed under: Forecasts, Market Matters, Economic Data, Oil

OPEC oil ministers agreed to keep production unchanged. Saudi Arabia has made it clear that it does not want oil prices to fluctuate too much, fearing that it would stunt the fragile recovery of world economic growth. They want to keep prices in the $70 to $80 per barrel range.

The key problem for OPEC is adherence to output quotas. At present, member adherence is about 60%. Oil demand is on the weak side. Edward Meir of MF Global said: "We suspect the ensuing price bias will be to the downside."

Next year, demand is expected to increase by about 800,000 barrels per day. If OPEC can keep prices near the $70 per barrel level going into next year, the increased demand will justify the price.

However this scenario plays out, in the final analysis the market will determine the price. The current price is near $73 per barrel.

OPEC estimates that full adherence to stated quotas would eliminate one million barrels a day from the market.

It seems that the meeting was more of a pep talk to member states, telling them to adhere to their quotas. OPEC is also faced with the movement to "green technology" sweeping across the world. Exxon Mobil (XOM), for example, is buying XTO Energy (XTO), taking a giant step into the domestic natural gas market.

Do you believe that oil prices will drop from today's levels?

Tags: Edward Meir, Exxon Mobil, inthenews, oil prices, oil production, OPEC, XOM, XTO