Another Opec Meeting and Rational or Irrational Melodrama?

Lynne Kiesling

Yes, I’m trying to channel Alan Greenspan here … OPEC ministers are meeting now, and are stating their commitment to stable oil prices and maintaining their oil supplies. It does raise the question of whether the extent to which their utterances move markets is grounded in fundamentals, or is more like the media and traders trying to read cryptic Greenspan tea leaves.

In any case, OPEC is unlikely to reduce its output quota in the presence of Iran’s nuclear issues, Nigeria’s oil supply uncertainty, and other continuing supply concerns.

OPEC oil producers indicated on Tuesday they would keep output close to the limit to fill supply gaps in Nigeria and Iraq and steer prices away from a $70 danger zone that could hurt the world economy.

Ministers meet here on Wednesday to chart OPEC output in the second quarter. The world’s biggest oil exporter Saudi Arabia is among those opposed to lowering the 28 million barrels per day ceiling with prices above $62, disruptions to exports from Nigeria and Iraq and controversy over Iran’s nuclear program.

One interesting aspect of what the ministers are saying now is that they anticipate oil prices falling in the spring, but that expectation hasn’t yet been reflected in futures prices. From the Post article:

OPEC’s own economists forecast world oil demand will slow in the spring, but prices are telling a different story. Worries over supply have pushed the cost of a barrel of oil to the highest level in a quarter of a century in real terms.