OPEC on horns of dilemma

Paris, September 7:

Oil producers’ cartel OPEC is expected to keep its output unchanged at its meeting next week, ignoring pleas from rich countries for more supplies as crude prices approach 80 dollars per barrel.

Several of the group’s 12 members have insisted in recent days that the market is adequately supplied with crude and that recent price gains are beyond their control.

But the Saudi Arabia-led club is seen as facing a dilemma: it seeks high oil prices to maximise its income, but it wants to avoid a global economic slowdown caused by expensive crude.

The downside risks for the global economy are elevated at the moment, with the impact of a crisis in the US housing market and recent turmoil on financial markets still unknown.

Some economists have argued that a fall in oil prices induced by an increase in output by OPEC would boost the world economy and help it to absorb the drag caused by US housing defaults and tightening credit conditions.

But oil market analysts believe OPEC is unlikely to to take the risk at its meeting on Tuesday, with members mindful of when they increased production in 1997 just as the Asian financial crisis was unfolding. Fears of a recession and reduced demand sent oil prices into a tailspin and they crashed to 10 dollars in 1999.

“The market continues to draw support from speculations that the group is likely to leave

its output unchanged during their next meeting,” said Michael Davies, analyst at the Sucden brokerage in London.