OPEC May Keep Production Flat But Gamble on Price Rise

Most analysts believe that OPEC will keep supplies flat when members meet in Angola on December 22. "There will be no change in OPEC supply of crude oil. OPEC will not reduce supply and it will not increase supply," Algerian Energy and Mines Minister Chakib Khelil said to several media sources.Many economists believe that keeping supply steady will mean OPEC members will only fetch $70 to $80 per barrel next year. Surveys of oil demand for 2010 indicate that while it may rise modestly in China and the U.S., it will be flat in most other parts of the world.

The OPEC decision could be a calculated risk that unexpected global events will push crude much higher than $75 next year. There have been several incidents in the last week alone that show oil prices could destabilize and rise quickly. Royal Dutch Shell (RDS.A) said it would try to sell its Nigeria fields for $5 billion. Continued attacks by rebels on the pipelines in the African nation have disrupted supply.

Iranian forces attacked an Iraqi oil field on December 20. They have withdraw from the field but are still on Iraqi land. Iraq is also faced with attacks on some of its pipelines by rebels in its northern regions.

Members of the OPEC cartel may be able to sit back and claim that they have done nothing to increase oil prices: They will hold supply steady and indicate that they have, to the best of their ability, matched supply and demand. Then they can let the political and military messes in other countries push oil prices higher as 2010 progresses.

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