Wednesday, May 13, 2009
Oil Heading to $60 per barrel Restrain Possibilities of a New Cut of Production
Wednesday, 13 May 2009
The next meeting of Organization of Petroleum Exporting Countries is on May 28. We are 15 days away from this critical meeting and in the meantime no one knows what can happen in the world stock and crude oil markets. But the possibilities of a new cut in cartel's daily oil production are diminishing with the current situation. Yesterday, oil rose to a six-month high in New York as a rebound in equity markets stoked speculation that an economic recovery will reduce the glut of fuel supplies. Crude oil for June delivery rose as much as $1.18, or 2 percent, to $59.68 a barrel on the New York Mercantile Exchange, the highest since Nov. 14, 2008. It is characteristic that even the high level of US stockpiles, which probably gained 1 million barrels last week, didn't manage to reverse oil's march to $60 per barrel.
Officially, oil producers underline that oil is now too cheap, the current price undermines future investments and they would be satisfied with prices at $70-$80 per barrel. But, unofficially, they are more than satisfied as they know better than anyone else that the price of $50 per barrel is more than good during the worst recession of last decades.
The upcoming meeting of course is being watched closely by the United States and other industrial countries, with some officials warning new cuts and higher oil prices could keep the global economy mired in a recession. The physical leader of OPEC, Saudi Arabia, gave the tone via its Oil Minister Ali al-Naimi. "You have to understand, the world economy is not as healthy as it should be. So you should expect demand, worldwide, to be down," he said answering to the cartel members that would like to see higher prices. And he fears that, as long as the global recession persists, demand for oil will continue to weaken. "That would be a guess, but you know, the global oil demand in 2009 is significantly less than 2008," he said.
But, although al-Naimi's remarks some cartel members, including Algerian Oil Minister and former OPEC President Chakib Khelil, are calling for additional cuts to drive prices higher.
According to well respected oil market analysts, a new cut of daily production would be a wrong move by OPEC and can have the opposite effect on oil prices, as the more expensive oil could hurt the already low demand. Energy analyst John Hall warns that further cuts of production would be a mistake. "Politically it will be a very, very bad move indeed for OPEC to fuel recession by increasing oil prices further, particularly at this time," he said.
Makis Theodoratos, Hellenic Shipping News
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