Yesterday, December 11th the 158th OPEC meeting was held in Quito, Ecuador. OPEC which is responsible for about 40 percent of world crude supply announced its decisions vis-à-vis its output quota for 2011.
The main decision was that the output targets will remain unchanged for 2011. According to Bloomberg, Saudi Arabian Oil Minister Ali al-Naimi said that the current range of crude oil prices of 70-80 USD/b is a good enough price range for OPEC. Furthermore, it seems that since OPEC has set to keep the OPEC supply steady, the question will remain if this decision of not increasing quota will help contain the crude oil prices at these 70-80 USD range.
The reason for keeping OPEC supply steady is explained in its press release:
” Having reviewed the oil market outlook, including the overall demand/supply projections for the year 2011, the Conference observed that the increase in the annual average oil demand in 2011 is likely to be lower than in 2010. This expectation of lower demand growth is coupled with challenging risks to the fragile global economic recovery, including the adverse effect of possible currency conflicts and fears of a second banking crisis in Europe, all of which would negatively impact on oil demand. With the OECD still facing lower industrial output, lagging private consumption as well as persistently high unemployment, and with ample spare capacity throughout the oil supply chain, the Conference agreed to maintain current oil production levels. ” link: OPEC press release.
Consider that The IEA (the International Energy Agency) raised its projections for the global demand for crude oil in 2011, and projects the worldwide demand will be 88.8 million barrels per day, which is based on “stronger data from OECD North America and non-OECD Asia”. On the other hand, so does the supply in 2011 expectations rose to 53.4 million barrels per day – a 0.6 mb/d.
Therefore if the IEA projections will be correct, and the economic conditions in the US and Europe won’t improve in the next year for investment purposes, this could imply that crude oil prices could increase next year and pass the 70-80 USD/b range.
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