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OPEC decides to hold oil prices and production March 17, 2010

Posted by mytruthaboutoil in Oil (general), Oil prices.
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Is $80-a-barrel oil the new $60?

The Organization of Petroleum Exporting Countries hopes so. The oil cartel met in Vienna on Wednesday and decided to leave well enough alone, making no changes in production quotas and praising the current world crude-oil price of about $80 as high enough to spur new exploration and production and low enough to avoid killing the global economy’s fragile recovery.

Last year, crude-oil prices averaged $61.95 a barrel. So far this year, however, the price of West Texas Intermediate-grade crude oil — a widely used industry benchmark — has averaged more than $77 a barrel, a more expensive start than in any year other than 2008, when prices began at more than $90 a barrel and later spiked to nearly $150.

Citing “persistently high” petroleum levels in the storage tanks of industrialized nations and an expected increase in oil output from non-OPEC countries this year, OPEC ministers said there is no need to boost production. At the same time, they said in a communique that there is no need to cut output, citing “serious threats” to the global economic recovery from “the mounting and potentially unsustainable public debt in the most advanced economies.”

“The OPEC countries are gleeful about what’s happening in the oil business, and they don’t want to do anything to change it,” said Edward Morse, an oil analyst at Credit Suisse.

“Oil prices are high and rising, so there’s really not much for them to do,” said Roger Diwan, a oil expert at PFC Energy, a Washington consulting firm. “They just need to watch and make sure that the economy doesn’t dip into recession. They’re sort of on automatic pilot.”

The day before the meeting, the oil minister from Saudi Arabia, the world’s biggest oil exporter and an OPEC linchpin, expressed satisfaction with the current market conditions.

“The price has stayed very well in the range of $70 to $80. It is in a very happy situation,” Ali al-Naimi said on the eve of the meeting, adding that he saw no need to change output. “There are no shortages, investment is going on, demand looking forward is going to continue to rise, so everyone is happy,” he said, according to Bloomberg News.

World oil prices are relatively high, given that U.S. motorists’ demand for fuel remains weak, virtually unchanged from last year; about one out of every eight barrels of oil produced worldwide goes into the tanks of American vehicles. The weak demand for diesel fuel, used largely by truckers, is a sign of continued U.S. economic weakness.

“Two weeks ago, it looked like we had passed last year’s horrible data, but now we’re back below that level again,” Morse said.

And prices at the pump are rising because crude oil prices have been high, and that is likely to restrain U.S. demand for gasoline. The Energy Information Administration reported Wednesday that for the fourth week in a row, the U.S. average price for regular gasoline increased. The average moved up about four cents, to $2.79 per gallon, 88 cents higher than it was last year at this time, the EIA said, noting that the cumulative increase during the past four weeks amounts to 18 cents per gallon.

China’s booming economy is one of the few sources of new demand for oil; another is in OPEC members’ economies, where fuel prices are heavily subsidized. But oil production capacity continues to edge up in many places, such as Iraq, Angola and offshore Nigeria. Abu Dhabi and Kuwait are also planning production projects.

Financial concerns are another key factor. Diwan said oil prices are relatively high because investors have been buying oil and other commodities because they expect the value of the U.S. dollar to decline. “There is a flight to hard assets,” he said.

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