OPEC won’t boost oil supply

By Tom Stundza -- Purchasing, 3/5/2008 10:11:00 AM

Despite benchmark crude prices trading for future deliveries above $102/barrel, the Organization of Petroleum Exporting Countries has decided to continue pumping at the current rate. In effect, OPEC rebuffed calls from large consuming nations to pump more oil to help lower spot and futures prices.

A Reuters News Service report says that the Bush Administration believes that even a token supply increase from 13-nation OPEC would help to tame prices and contain any impact on a fragile world economy. However, the oil ministers repeatedly have said the oil market has been driven upwards by factors such as a weak dollar, speculation and political strife—and not by a lack of crude.

Crude prices have increased 13% since OPEC's last meeting on Feb. 1 as investors have bought commodities as a hedge against the threat of quickening inflation. Nigeria's minister of state for petroleum, H. Odein Ajumogobia, said before today’s OPEC meeting that he believed output should be kept steady, although he said oil above $100 was uncomfortable and above $80 a barrel was high. “The OPEC official position has been anything above $80 is on the high side,” he told reporters. Yet, he also told Bloomberg News that “everyone's almost unanimous that the current price is being driven by factors other than fundamentals,''

Actually, although there are heightened fears about the health of economic growth in the U.S., Europe and parts of Asia, crude inventories have been rising in the world's industrialized nations, suggesting that the latest price runup has been caused by overinvestment in futures by market speculators. Indeed, Dow Jones Newswires this morning reports that Saudi Arabia's oil minister, Ali Naimi, says the blame for soaring oil prices goes to “tremendous speculation.”

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