All OPEC decisions amid financial crisis are useless: international experts

Azerbaijan, Baku, Feb. 17/ Trend , A. Badalova/

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," a senior fellow at the U.S. Cato Institute and supervisor for research on natural resources Jerry Taylor told Trend via e-mail.

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 canceling 35 of 150 large oil and gas production projects.

Taylor said agreements by the OPEC member states do not necessarily translate into action by OPEC member states.  Cheating on quotas is widespread and strategic economic advantages follow from the maintenance of excess production capacity.  Less production capacity will increase spot prices in the future if and when demand exceeds production capacity.

Analyst on energy policy at Cascade Policy Institute Todd Wynn says the OPEC makes decisions based on profit maximization.

"It could but it depends on the economy and the level of demand at the time. Undoubtedly, lower supply means higher price but it still could fall if demand shrinks more than the decrease in supply," Wynn told Trend via e-mail.

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. 

According to the EIA forecast, global oil demand will shrink 1.2 million barrels per day and reach 84.7 million barrels per day in 2009.

OPEC is scheduled to meet in Vienna on March 15, which could lead to another production cut to mitigate some of the slack in the world oil market, Gamson said.

Estimated OPEC crude oil production fell 1 million barrels per day during the fourth quarter of 2008, reaching 30.7 million barrels per day. 

Gamson said OPEC crude oil production is expected to fall by an additional 1.6 million barrels per day in the first quarter of 2009, the lowest level in 5 years.

"The decline of 2.6 million barrels per day over this period represents nearly two-thirds of the 4.2-million- barrels-per day-cut in OPEC's production target announced at its December meeting," Gamson said to Trend by e-mail.

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 told Trend via e-mail.

He said all these decisions could send the world economy right back into recession, causing oil prices to collapse again.

Energy analyst at the Brussels-based International Crisis Group Charles Esser says the effect of a lack of investment should be less production capacity than there would otherwise be, and less supply or spare capacity would have a positive effect on the oil price.  

International analysts say prices on oil will reach $50 per barrel in 2009. 

Esser said prices on WTI will stay in the $40 to $50 per barrel range for 2009. Oil prices will recover in longer term.

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.

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