Energy Prices Dip as OPEC Takes No Action
Source: Oil & Gas Journal, Sam Fletcher (3/16/09)
"OPEC members said their production reductions so far have contributed to balancing the price of oil above $40/bbl."
Reuters news service reported President Barack Obama called King Abdullah of Saudi Arabia prior to that meeting. Earlier last week, U.S. Secretary of Energy Steven Chu said another cut could severely interfere with the recovery of the troubled global economy.
As was generally expected by market analysts, OPEC members did not announce another reduction of production quotas but instead called for stricter compliance with those already in effect. OPEC said secondary sources reported 79% compliance in February with its December decision, which in conjunction with an earlier quota adjustment was to have reduced output by 4.2 million b/d to 24.85 million b/d.
OPEC members said their production reductions so far have contributed to balancing the price of oil above $40/bbl. The average price for OPEC's basket of 12 reference crudes gained $1.91 to $44.15/bbl on Mar. 13. So far this year, OPEC's basket price has averaged $41.80/bbl. OPEC members scheduled their next ordinary meeting for Sept. 9 in Vienna.
Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "Although history would suggest that it can take OPEC up to 15 months to stabilize the oil price, the narrowing contango in the futures curve indicates that OPEC cuts are taking hold. In view of the still fragile global economy, downside risks to the oil price will not be eliminated until the very end of 2009. However, looking into the second quarter we believe oil prices are starting to find a floor."
Sieminski said, "A more convincing floor in oil prices will require stability in global equity markets, a reduction in asset market volatility, another round of OPEC production cuts, and a resumption in U.S. growth."