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Analysts say OPEC likely to maintain output status quo

OPEC, the oil producers' group that pumps about 40 percent of the world's crude, risks oversupplying the market if it decides to hike output at a policy meeting this week, analysts said.

But leaving output quotas unchanged could send oil prices to fresh record highs and even above the psychological US$100-a-barrel mark for the first time, they said.

Member nations of OPEC will hold an official output meeting in Abu Dhabi on Wednesday, with uncertainty surrounding the outcome of their decision.

"With the economic problems hanging over the global economy now, OPEC is probably thinking that [oil] demand is more likely to go down than up in terms of current forecasts and they'll probably want to keep things steady" regarding output, said Simon Wardell, an oil expert for Global Insight, an independent analyst group.

Veronica Smart, an analyst at the Energy Information Centre consultancy, said that while OPEC would find it hard to justify doing nothing with production quotas should prices remain around US$90-a-barrel by the time of its meeting, the cartel was likely to keep output on hold.

"If OPEC did decide to increase production levels it probably wouldn't come into effect until January 1 or perhaps February 1 and it might be seen as a little bit too little too late," she said.

Such a decision would place extra oil onto the market towards the end of the northern hemisphere winter, when demand for heating fuel drops, and ahead of the second quarter when OPEC does not like to see a large build-up of inventories, Smart said.

"If OPEC decided to do nothing ... they probably would be some bullish [price] impact on the market," the analyst said. "You can argue that [no change to output] could be used to have a bull run to [US$]100."

World oil prices slumped last week on increasing speculation that OPEC may decide to hike crude output on Wednesday.

OPEC last decided to raise production in September when it agreed to provide an extra 500,000 barrels of crude a day to the market, which took effect on Nov. 1.

Although some OPEC ministers have expressed concern that expensive crude could also dampen demand for oil, they reject blame for the nearly triple-digit prices.

Instead the cartel argues they are the result of speculators being drawn to the market on geopolitical tensions, such as between crude-producer Iran and the US.

"There is a huge element of speculation in the market," Smart said. "However, the speculation is largely around supplies and if OPEC were producing perhaps slightly more, that would take some of the fear premium out of the market."

Saudi Oil Minister Ali Al-Nuaimi last Wednesday insisted the world oil market was well supplied and that high prices did not properly reflect the supply-demand situation.
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