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How far is OPEC responsible for oil rally?

April 19, 2008 15:11 IST

The analysts have blamed the weak dollar as the major cause for rising crude oil prices. Organisation of Petroleum Exporting Countries has also blamed speculation on a weak dollar contributing to the oil price hike.

However, the over looked factor is the contribution of OPEC countries to the present oil crisis. OPEC which has oil reserves that constitute 80 per cent of the total global reserves is unwilling to increase output to bring down the prices.

Therefore, the balance of international crude oil supply and demand remains tight. OPEC's latest monthly report shows that demand from non-OECD (Organisation of Economic Co-operation and Development) nations including Asia, Middle East and Latin America are strong, however, demand from OECD countries tend to decline.

OPEC expects an additional daily average output growth of 1.2 million barrels or a daily average oil output of 87 million barrels in 2008. The OPEC output quota this year will be less than 32 million bpd and non-OPEC output would be about 50.3 million bpd, according to a report .

OPEC's actual production will be higher than the quota but that will not be sufficient to coverup the demand-supply imbalance in the international

market.

OPEC countries account for 40 per cent of the global crude oil output. Despite its decisive role in stabilizing prices, OPEC has thrice declined to increase output since last December.

U S President George Bush and his officials had repeatedly pleaded with OPEC nations to increase output.

It also insists that the economic recession in the United States will influence global economic growth and result in a decline of world demand for crude oil.

Meanwhile, the warming weather in the northern hemisphere and the well-supplied oil market, among other factors, are proof that there is no need for an output increase, OPEC said.

OPEC's expectations about "reasonable oil prices," as well as statements of some member countries that the prices have not significantly deviated from the reasonable level, are making analysts more skeptical about the cartel's readiness to curb the current high prices with an output increase.

Meanwhile, OPEC has said that world oil demand this year is forecast to grow by 1.2 million barrels daily to an average of 87 million barrels per day. So long as OPEC's output is not sufficient enough to cover the rising demand from Asian region, oil prices will tend to rise, analysts said.

Rajneesh Shukla/Commodity Online