OPEC: It’s Not Our Fault!
Lionel Laurent, 03.05.08, 11:25 AM ET LONDON – The Organization of the Petroleum Exporting Countries decided to keep production on hold Wednesday, a widely-expected move that did little to dispel worries over the current record price of crude oil.
OPEC repeated its mantra that the market was “well-supplied” on Wednesday, arguing that an economic slowdown in the United States and the wider financial crisis would scale back demand in 2008. The cartel’s next scheduled meeting is in September, which suggests that it does not see any urgent need to change the supply-demand balance–despite the fact that oil is currently trading at $100 a barrel.
Crude oil prices rose on the news during morning trading in New York, though OPEC’s decision was expected. The West Texas Intermediate benchmark gained 1.6%, to $101.14 per barrel, while Brent crude rose 1.6%, to $99.52 per barrel.
“If the prices are high, they are definitely not due to a lack of crude,” said Dr. Chekib Khelil, Algerian oil minister and president of OPEC. He said stocks of crude oil were higher than the five-year average, and blamed instead the weak dollar and volatile financial markets for the current commodities boom.
The U.S. dollar was down 0.2% against the euro and the pound sterling, battered by yet more fears of an American recession. This negative sentiment has fueled investment in safer commodities like oil and gold, which are currently at record highs.
Given the amount of external factors pushing up the price of oil, OPEC is understandably keen to stay out of the limelight. The cartel accounts for some 40% of global oil production, and although its announcements do give some direction for the market, the current uncertainty has left the 15 members rather reluctant to act. (See “OPEC Could Be Powerless To Cool Crude”)
“OPEC is keeping a close eye on the global economy and does not want to become the reason for either its saving or downfall at this crucial moment,” said Samuel Ciszuk, analyst with Global Insight. “They want their power to be wielded in a much more low-key way, so as to provoke the least political backlash.”
The 13-member cartel may be right to expect a drop in demand later this year. With higher oil prices eventually set to feed through into gasoline, jittery American consumers may have to cut back on consumption. But until then, oil prices are set to rise in tandem with the crumbling dollar.