Crude Oil: Focus on OPEC

Posted by Oilism.com on March 11th, 2009 at 05:53am

OPEC has more reason than ever to cut the oil productions. Will the oil cartel be able the push back oil prices again?
“A price of 75 dollars a barrel is fair for oil producers and consumers. This is said by Saudi Arabia last year, according to Bloomberg. With this in
mind is a further reduction of the oil production by OPEC this week is certainly not unlikely. With over 40% of the total world production is the power of OPEC
very big.

Since the Brent Crude Oil futures on July 11, 2008 set a record oil price of $ 147.50 it got in a free fall. On December 24, 2008 the oil price hit as low as USD36.20, a decrease of 75% in five months. It is therefore not surprising that oil producers benefit of oil production cuts. Since September 2008, the OPEC production is already decrease with 13%. The oil price is now stabilized, the crude oil futures move since early 2009 within a bandwidth of 39 and 52 dollars.

Market focus mainly on oil demand failure

The oil markets focussed in the past few months with more attention to OPEC and the production side. Traders look today way more to the demand side of the oil market. That is not crazy, given the recession in the U.S. The U.S. labor market figures on Friday March 6 to speak for it self. Unemployment rose to 8.1% in February 2009, the highest level in 25 years. Moreover the U.S. lost in the last quarter a small 2 million jobs, the fastest pace since 1939 when analysts began tracking the data. With one quarter of the global oil consumption is the demand from the U.S. very important.

The recession & financial crisis is for sure not limited to the USA only. For example, the World Bank stated that the entire world economy will show shrinkage for the first time since 1945. Proving the demand for oil is closely connected with the growth of world economy. The black gold is indispensable for transport, industry and many other sectors. If economic activity is declining, falling demand for oil is a logical trend you can expect. The International Energy Agency (IEA) are taking into account a decline in demand for oil in 2009 by 1.1% year on year to 84.7 million barrels of crude oil per day, even after a decline in 2008 0.4% 5. Two years of falling demand figures didn’t occurred since 1982/1983, says the IEA.

Where should an oil investor look out for?

The oil price is obviously determined by demand and supply at this moment. If OPEC again decreases the oil production, it can have a big impact on current oil prices. In the last few days we already could notice some upwards movements: the price of oil rose Monday in New York to the highest level in six weken. In the upcoming months, for each oil investor of today it is important to focus on the development of both demand as the supply side of crude oil. This week first - very cautious - Signs of recovery on the demand side were noticed. The U.S. business confidence ISM rose for the second month in a row. While China - the second biggest oil consumer in the world - takes an economic growth in 2009 8% in to account.

On the supply side are the current developments around OPEC of big importancy. Geopolitical tensions in Nigeria, Iran could influence worldwide oil markets. In time, the crisis could trigger higher oil prices says the IEA. The sharp drop in oil prices makes investing in new oil production capacity unattractive and can put the oil supplies in 2009 further under pressure.

Under China Oil+ Crude oil+ OPEC+ Oil+ Oil Price 2009+ Oil Price 2010+ Production levels