OPEC may boost oil supply to cut prices and boost stalling global economy

2nd June 2011

A change may be possible, with OPEC, the Organisation of Petroleum Exporting Countries considering boosting production and therefore cutting prices next week according to the Vancouver Sun.

The website quotes one unnamed OPEC delegate as saying "There is a need for an increase to replace the loss from Libya. Oil prices are too high. … $100 oil is scaring people."

By $100 he may referring to the price of US oil rather than the British measure Brent Crude which is currently trading at around $115 a barrel.

The website also quotes JP Morgan oil analyst Lawrence Eagles saying: "Even if a target increase results in few additional barrels of oil on the market, it could soothe Libyan supply concerns and worries about high fuel costs."

Website Xfinity here provides some details of Iranian opposition to production increases and says OPEC may be content to formalise the fact that oil production from OPEC is already above the supposed production ceiling at the moment.

Of course, the politics of OPEC are complicated, with lots of different interests, and countries with differing capacities for oil production. As ever, it appears that Saudi Arabia is the key because it has spare capacity.

The talk from OPEC has been prompted by fears about very sluggish growth worldwide.

 America, Europe, including places that have been leading EU growth, like Germany, and places that haven't, like the UK, have all seen low growth and even China is slowing down as a result of the action it has been taking against inflation.

Here are a few of the relevant reports on the state of the world economy.

RTT news reports on China here and the New Zealand Herald gives a neat global summary.

Thisismoney looks at oil price predictions going forward and suggests that the direction of travel was already down because of gloomy economic numbers worldwide.

It also provides a useful backgrounder on what has been happening with oil in the last few years.

And if you want some really detailed oil information here from the start of May are a set of predictions from the US Energy Information Administration though of course it may have been overtaken by events at OPEC HQ.

Finally here is a couple of links to articles about high oil prices and their link to stock markets though most of the research Mindful Money has uncovered relates to the US. Website Barrons gives Barclays Capital space to consider the issue mostly from a US viewpoint.

For Britain, now an importer of oil, lower prices should be better news. Here economist Stefan Karlsson, of the Austrian economic school, summarises things neatly.

Finally this article from Larry Elliott of the Guardian won't make comforting reading when he asks why we don't have a sovereign wealth fund built up from years of oil export revenue, like Norway or most of the countries of the Middle East.

Still, if OPEC goes ahead it may, eventually, bring down the price of heating oil and petrol. Mindful Money will keep watching the situation.

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See Also: The Commodities Bubble Explained  

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