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OPEC decision won't boost prices

OPEC decision won't boost prices
International analysts say prices on oil will not exceed $50 per barrel in 2009.

International analysts say prices on oil will not exceed $50 per barrel in 2009.

Demand is always a critical factor for all the markets and of course the oil market. During the last eight or more months, it became the key word for oil markets and it determined oil prices. Weak demand, as a result of the severe economic crisis, is the main reason for the free fall of oil prices from last September. From the beginning of the year crude oil prices have fallen around 30%. The oil market remains oversupplied despite deep OPEC output cuts since September as the global economic slowdown erodes demand, Nigeria's oil minister said on Wednesday. At the same time, the majority of analysts looks much more pessimistic. Jerry Taylor, a senior fellow at the U.S. Cato Institute and supervisor for research on natural resources, estimates that ?All OPEC measures to stabilize oil prices will not be fruitful until world economy recovers. If the global economy remains weak and no exogenous events hit the crude oil markets, oil prices will remain low?.

Current situation in world oil markets seems to justify Mr. Taylor"s saying. Unstable oil prices made the OPEC to cut oil output quota to all time low for the last six months. In its last December meeting, OPEC decided to cut oil production 4.2 million barrels per day. Later last week, the cartel decided to postpone 35 of 150 large oil and gas production projects. But prices continue falling as low as the level of $35 per barrel.

From his part, analyst on energy policy at Cascade Policy Institute Todd Wynn says the OPEC makes decisions based on profit maximization. ?It could boost crude prices, but it depends on the economy and the level of demand at the time. Analyst at the U.S. Energy Information Administration (EIA) Neil Gamson says lower global oil demand and rising surplus production capacity through at least mid-year 2009 reduce the possibility for a strong and sustained rebound in oil prices over that period. Undoubtedly, lower supply means higher price but it still could fall if demand shrinks more than the decrease in supply?.

International analysts say prices on oil will not exceed $50 per barrel in 2009.

Esser said prices on WTI will stay in the $40 to $50 per barrel range for 2009. Longer term he expects oil prices to recover.

Until the recovery comes, oil prices will wander between $30 and $50 per barrel.

According to the EIA forecast, price on WTI will average $43.14 per barrel in 2009. The highest oil prices - $45 per barrel will occur in the fourth quarter. The price on WTI will be $54.5 per barrel in 2010.

The fourth quarter will see the maximum level of prices - $60 per barrel.

So, what the cartel could do to stabilize oil prices and support its falling oil revenues?

For the time being, oil producers don"t have a clear alternative solution. Help from producers outside of the group would help match supply with falling demand as the global economy deteriorates. But for the moments, some members accused cartel leadership for not trying to secure the cooperation of independent producers as Russia and Noeway. ?I think that we all agree that there is a destruction in demand, which is why the (OPEC) secretary general and president have been asking non-OPEC producing countries to make a reduction of oil in the market. If that happens, then we will see the impact? Nigerian oil ministry Odein Ajumogobia said recently.

The only weapon that OPEC has under this circumstances is to persist in cutting its production, as demand will shrink more in the coming months.

But even further cuts may prove not capable to revive oil markets. Pioneer Astronautics president Robert Zubrin says the OPEC decision will not boost oil prices much right now. ?But as soon as the world economy starts to recover this decision, combined with OPEC"s other recent decisions to take crude out of production, will shoot oil prices up over $100 per barrel,? Zubrin says. He said all these decisions could send the world economy right back into recession, causing oil prices to collapse again.


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