OPEC caution on output may help bring back $100 oil

Analysis: OPEC caution on output may help bring back $100 oil


By Barbara Lewis

LONDON | Wed Dec 29, 2010 8:31am EST

"Prices have not yet risen to $100/barrel and there is nothing mysterious about $100/barrel," he said. "It equates to no more than $80/barrel in 2005 dollars, once current prices are corrected for inflation."

In nominal terms, oil has risen 35 percent from a low hit in May and this week's peak was around 15 percent above the price at the end of 2009.

The current rally set in around September after the U.S. Federal Reserve embarked on its latest quantitative easing, which has triggered a wave of buying across financial markets.

Barclays noted total commodity assets under management had reached an all-time high after investors piled in.

Data from U.S. regulator the Commodity Futures Trading Commission released this week showed money managers extended their net long crude oil positions to a record.

"The Fed has in a sense been pushing the speculators. OPEC can very well argue it's not its role to add more oil," said Olivier Jakob of Petromatrix.

Still oil's strength has been modest by comparison with commodities that face looming shortfalls, such as copper, which has touched a series of records.

As oil began to rise in September, traders were contemplating record fuel inventories in the United States, the world's biggest oil user.

Stocks have since fallen, although a deep draw in crude stockpiles could have been in part because of year-end tax positioning. The latest U.S. data will emerge late Wednesday and Thursday.

In addition to stocks, OPEC has significant spare capacity, which it has pegged at around 6 million barrels per day (bpd).

Iraq, which is exempt from the OPEC system of supply curbs as it recovers from war and sanctions, has huge scope to grow.

Analysts have disputed it can meet a capacity target of 12 million bpd in around seven years, but even a slower increase would provide much of the extra oil needed to meet any rise in demand.

Its new oil minister said it aimed to increase output to 3 million bpd by the end of 2011, up from around 2.6 million bpd.

A Reuters poll saw the call on OPEC, as opposed to non-OPEC oil, increasing by 600,000 bpd in 2011. Overall oil use would rise by 1.5 million bpd.

Absolute demand would hit a new high, but the rate of demand growth is slower than the record of 3 million bpd in 2004, according to figures from the International Energy Agency.