OPEC Holding the Line
The Organization of Petroleum Exporting Countries (OPEC) decided to hold out against further production cuts at today’s meeting, and resolved to enforce compliance with existing reductions.
Obviously dealing with crude oil ($wtic: chart) production is a double edged sword. Cut production in an effort to drive up prices, and you risk cutting demand even further in these fragile economic times. Leave production alone and prices could fall further, cutting the economic incentive to bolster reserves.
OPEC has claimed that crude oil prices in the range of $50 to $60/bbl would be ideal, which is down from the $70-90 range that OPEC’s secretary general Abdalla el-Badri levied as appropriate at the end of January.
One positive aspect of a lower price range is that production with higher lifting costs will be shut in, further helping moderate the industry financials as s whole.
The next meeting is in two months on May 28th where the supply-demand analysis may be a bit more clear.
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Recent meeting of OPEC countries announced that no more production cuts in near term. This helps the crude prices to increase moderately from the lowest level of $36/barrel in December. The demand for crude oil is expected to increase moderately from the countries such as China, U.S, etc. OPEC expects the market to bounce back in the price range of $50-60 per barrel by 2010.