OPEC keeps output steady in face of $100 oil

OPEC ministers on Wednesday [5 Mar 2008] agreed to keep oil output steady and said record high prices had been driven by factors that were beyond their control. U.S. crude hit a record of $103.95 a barrel on Monday [3 Mar 2008] and was trading above $100 on Wednesday.

Washington has said even a token supply increase from the Organization of the Petroleum Exporting Countries would help to tame prices and limit any impact on a fragile world economy. But OPEC ministers have repeatedly said the oil market has been driven by a weak dollar, speculation and political strife, and not by a lack of crude. After less than two hours of talks, OPEC delegates told Reuters the group had reached agreement to keep supplies steady. OPEC last decided to raise its production in September 2007 and that decision did not halt the oil price rally, OPEC President Chakib Khelil noted.

Independent oil strategist Peter Gignoux said there were still "enormous flows of money" looking for a home and falling interest rates and sliding equities markets made commodities a good option. "People want to be involved in raw materials in one form or another and the vehicle for most of them is the oil futures market," he said.

- Markets hate uncertainty, and there was quite a bit of that in the day-time (local time here in Singapore). Oil went for a swim below $100, hovering in the high-$99's. Though I've got no money directly involved in the crude oil futures markets (I'm mostly long Canadian oil/gas and resource companies, and ETF's), like I was telling fellow blogger simontay earlier in the day, I was pretty sure that they would maintain the status quo.

This is from a peakoiler's point of view : OPEC cannot raise production in any meaningful way. They have little or no spare capacity amidst crushingly high and growing demand. Despite a slowing US economy, demand is rising elsewhere, especially in the Middle East countries themselves. The Arab states have the highest oil demand growth rates among all the countries of the world. Back to production : OPEC certainly cannot cut production or risk oil shooting off to $120, $150 and $200 today, tomorrow, and the day after tomorrow. Hence : status quo. They cannot raise, they cannot cut, so they will make it remain the same. And so they did.

Once it was announced that OPEC production would be maintained, oil wasted no time hauling its ass back up above the $100 support level, and as I write this, oil is currently at $102.38 a barrel. Welcome back to $102 oil.

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