OPEC to hold supply steady, again

OPEC has been fairly quiet recently. There have not been the usual comments from members that prices are too low for their economies to prosper. That may be because oil has made it back to $70 without the help of reductions in supply. There are still a number of experts who believe that demand in China and India will accelerate and that the recovery of the U.S. economy will stimulate American demand.

Whatever the reasons, OPEC has signaled that it will not cut supply, a move that would tend to push up prices. The cartel will meet in Vienna on September 9. Reuters reports that "The market is in very good shape, very well supplied, the price is good for everybody, consumers and producers," according to Saudi Oil Minister Ali al-Naimi.

Some experts believe that OPEC is not moving on its output because it does not want to ruin the global economic recovery. That theory is based on the notion that another recession will drive demand for oil down sharply and crude could dive back toward $40. OPEC may be looking at itself as a facilitator of the worldwide economic recovery.

OPEC may have one other reason to do nothing. If it tightens supply, non-OPEC nations like Canada and Russia could pump more crude into the system, which would offset the cartel's actions. That would signal that OPEC is no longer the primary power in setting oil prices. A revelation that the emperor has no clothes might make OPEC a secondary force in setting world oil prices.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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