Oil Prices Hit $90 On OPEC Inaction

Opec Oil and energy ministers poses during a photo session before the start the closing session of 146th OPEC Conference in Abu Dhabi, Wednesday, Dec. 5, 2007.
AP
Oil prices rose sharply to about $90 a barrel Wednesday as OPEC members said they would keep output ceilings steady.

Expectations that a weekly U.S. petroleum supply report due later Wednesday would show a small decrease in crude inventories also supported prices.

Instead, the U.S. government data published Wednesday showed that U.S. oil supplies fell steeply last week while gasoline stockpiles rose, both by greater margins than analysts had expected.

Light, sweet crude for January delivery added $1.61 to $89.93 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe.

In London, January Brent crude futures rose $1.28 to $90.81 a barrel on the ICE Futures exchange.

OPEC's oil ministers issued a statement after a meeting in Abu Dhabi, United Arab Emirates, confirming that the group would leave output unchanged "for the time being," because the world was "well supplied" and crude reserves were at comfortable levels.

"We have enough stocks in the market," OPEC Secretary-General Abdalla Salem el-Badri said after the decision was reached. "There is no reason for prices to go (to) $100 a barrel."

Still, the statement expressed concern about market volatility driven by speculation - and suggested it was ready to step in if needed by taking "every measure deemed necessary to keep market stability through the maintenance of supply and demand in balance."

Oil producers are concerned about the U.S. economy, says energy analyst Julian Lee of the Center for Global Energy Studies.

"There's a sense that consumer (confidence) is being undermined and I think that's bleeding through to greater and greater fears about a recession in the United States," Lee said.

The 13-nation group plans to meet again Feb. 1 for a review of winter demand and the world economy, which seemed to indicate that OPEC was prepared to increase quotas should prices go much higher.

OPEC's decision suggested that it now viewed prices near or above $90 - an increase of about $40 since the start of the year - as acceptable.

A number of reports have suggested that several OPEC countries are already exceeding their output quotas.

With the OPEC decision "putting a floor on the price decline," analysts said other issues would determine the chances of a new rally in the coming days.

"The focus will now shift back to the weekly statistics and the Fed meeting next week and its repercussion for the dollar index," said Olivier Jakob at Petromatrix in Switzerland.

Others seemed dismayed by OPEC's decision, saying the oil ministers considered prices above $90 a barrel "as their birthright."

"How the market finishes today could tell us what prices really want to do," Peter Beutel, president of U.S. energy risk management firm Cameron Hanover, said in a research note. "If prices somehow find a way to finish in negative territory today, despite OPEC's greed, it would be really bearish."

For the week ending Nov. 30, crude oil inventories fell by 8 million barrels, or 2.6 percent, to 305.2 million barrels, the Energy Department's Energy Information Administration said in its weekly report. It was the third straight weekly draw.

Analysts expected oil stockpiles, which are 8.8 percent below year-ago levels, to fall by 700,000 barrels, according to a survey by Dow Jones Newswires.

Gasoline inventories rose by 4 million barrels, or 2 percent, to 200.6 million barrels, which is 1.7 percent below year-ago levels. Analysts expected stockpiles of the motor fuel to rise by 700,000 barrels.

Demand for gasoline over the four weeks ending Nov. 30 was 0.2 percent higher than a year earlier, averaging about 9.3 million barrels a day.