If OPEC is Idle, Oil Goes Back Above $100

Oil prices have come down toward $90 over the last two weeks. There is some indication that US supply is better than thought. There are rumors that OPEC will increase production. Hugo Chavez has not made good on his threat to cut off oil shipments to the US. And, Brazil made a find in the Atlantic which may be the largest field discovered in over a decade.

But, there are many signs that OPEC will not offer consuming nations more oil, especially with the price moving down. Their argument is that it is speculation and not supply which has pushed oil up. Their proof is that prices have moved back down by 10%.

Reuters quotes one expert as saying "The perception of a shortage of supply is driving the market," said John Hall of John Hall Associates. "If they don’t raise output I think the price could go back up to $100 a barrel and we could see $100 before the end of the year."

The reality of the situation is that OPEC nations do not want to give up money that will come to them if supply stays tight. And, it will. China’s appetite for oil is increasing by the day. Even a modest increase in production will not produce enough crude to offset that. And, winter is coming to the Northern Hemisphere.

OPEC likes the money and the West can still pay. Oil is not going down any further and it may well take a sharp spike up.

Douglas A. McIntyre