OPEC members have agreed to keep oil production at current levels at least through the peak demand season, but the possibility of a cut in February sent prices to more than $62 a barrel.
The 11-nation Organization of Petroleum Exporting Countries cut production quotas by 1.2 million barrels a day last October. In a meeting held Thursday oil ministers from member nations considered another reduction of 500,000 barrels a day.
Worries about growing inventories, a weak dollar and higher production by non-OPEC members are cited as the main arguments for lowering production. Oil prices peaked at $78.40 a barrel last July then fell to $55 this fall before climbing back to the low $60s. Iran and Venezuela reportedly called for immediate production cutbacks, but at the urging of importing countries, including the U.S., the group instead decided to wait until February.
In its weekly petroleum report, issued one day before the OPEC meeting, the U.S. Energy Information Administration explained that price would play a key role in the decision but the ministers would also consider “call on OPEC crude oil,” which basically subtracts non-OPEC supply from total demand to come up with the amount of oil OPEC members need to produce in order to maintain a supply/demand balance.
EIA noted that there’s a wide range of opinion regarding the outlook for 2007. Some analysts expect demand to increase by about 2 million barrels per day while non-OPEC supply will increase only 1 million barrels per day. If so, OPEC should be looking at production increases next year. But other analysts expect non-OPEC supply to increase by more than 2 million barrels per day – surpassing the expected growth in overall demand. If so, OPEC would need to cut production to maintain the demand/supply balance. “Time will tell” which assessment is right, the agency noted, but it cautioned that production cuts now would put upward pressure on today’s prices.