The markets wait
So far this week oil prices have gyrated in the low $40s, torn between the prospects of an OPEC production cut, various bailout and stimulus plans, and gloomier economic news. On Monday and Tuesday President-elect Obama’s announcement of a massive public works program sent oil higher for the first time in seven days. On Wednesday, oil ranged over $4 a barrel, closing at $43.52, after the week’s stocks report showed substantial gains in gasoline and distillate inventories. China announced that her crude imports in November were 17 percent lower than in October and that oil product imports were the lowest in more than two years.
Numerous organizations have lowered their forecasts for oil prices in 2009, with most seeing oil averaging somewhere in the $40-50 range. The World Bank issued a report forecasting that global demand for oil will collapse next year and commodity prices will not return to the levels seen last summer for the foreseeable future. Many analysts are now talking about $25 oil next year unless OPEC makes substantial production cuts.
Various OPEC officials continue to maintain that there will be a major cut at the Oran meeting next Wednesday. Moscow has indicated that it will announce its intentions about joining in the production cut at the same time.
The struggle in OPEC
The politics within OPEC are coming under closer scrutiny as it becomes clearer that a major production cut is the only thing standing in the way of still lower oil prices. This in turn would dampen oil exploration and production projects still further. The key question at the minute is whether OPEC can cut production enough to drive prices back up. While most analysts are talking of another 1 to 2 million b/d production cut, at least one observer says it will take a 6 or 7 million b/d cut to force prices back up by $30 or $40 a barrel.
Theories and intrigue abound. While the Saudis and the smaller Gulf producers have the financial reserves to see their way through some bad years, other OPEC members do not. The continuation of very low prices or substantial production cuts would force major changes in domestic and foreign policy, and perhaps even foster political instability in Iran, Venezuela, Ecuador, Nigeria, and Russia.
Some believe the pro-Western Saudis and their Gulf brethren understand that increasing oil prices in the midst of global recession can only deepen the troubles and delay the recovery. The Saudis have every reason to want the confrontational stances and policies that have developed in several newly rich oil exporters, particularly those of the Iranians, moderated.
