OPEC seeks to hold oil prices

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OPEC Oil Ministers, meeting today, have achieved 80% compliance with their announced production quotas. This is much higher than normal, and owes a lot to the hard-ball tactics played by Saudi Arabia, the world’s leading oil producer, in initially allowing prices to slip to a $32/bbl low.

The blog forecast in January that OPEC would be successful in stabilising prices “around the $35 – $45 range”. And as the Barrons chart shows, this range has since held, in spite of major speculative attacks from financial players trying to push prices either below $30, or above $50/bbl.

Saudi has also made no secret of its desire to push prices back to a $75 – $100/bbl range in due course. But as OPEC noted last week, the global economy is in a “terrible situation”. OPEC expects a 1mbd fall in demand during 2009, whilst it and the International Energy Association expect consumption to average only around 84.5mbd.

Uncertainty over OPEC’s ability to maintain the current range is therefore likely to continue, especially as quota compliance from Iran, Nigeria and Angola is only at 51%, 54% and 15%. Equally, this means that prices are likely to remain highly volatile. Even the core $35 – $45 range implies nearly 30% swings, whilst over 50% is entirely possible if prices overshoot on the downside towards $30 and then recover towards $50.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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