The Hindu Business Line : OPEC may defend prices in case of fall below $100

Will crude breach the magical $100 a barrel mark and move down to double digits after an extraordinary bull run of last several months? This is the multi-million dollar question in everyone’s mind.

The latest OPEC meeting has given sufficient indication that the cartel is now in a price defence mode, according to experts.

Mercifully, there will be no major cuts in output, but the conference agreed to abide by September 2007 production allocations, totalling 28.8 million barrels a day. This is the level which member-countries committed to “strictly comply”.

The OPCE stated that the market is oversupplied. It appears the $100-mark may become a trigger point for some OPEC members to demand some defensive action — either output cuts or something similar.

According to reports, the US oil demand is forecast to be down in the last quarter and during 2009. Non-OPEC production is forecast to be down too. The IEA monthly Oil Market Report released this morning confirmed the expectation.

Clearly, demand side factors have begun to kick in. Slowing global economic growth led by the US and Euro area is exerting downward pressure on consumption. An additional factor is the firming US dollar.

As the greenback continues to gain strength, the dollar-denominated commodity prices will begin to soften. Of immediate concern is the movement of Hurricane Ike which is poised to enter the Gulf of Mexico. How it will behave and whether it would inflict losses remains to be seen.

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