OPEC does enough to shore up oil, but at the cost of consumer fury

China (Platts)-- 11 Dec - 15 Dec 2006

With a second production cut in two months, OPEC seemed to have done just enough last week to ensure that crude oil futures markets will see out 2006 at a relatively high $60 or more.

Although the cut won't come into effect until February 1, it also do enough to soak up most of the surplus oil that has been swashing around the markets since the hurricane season passed uneventfully in the Gulf of Mexico, leaving most of the world's wells producing well over the levels needed to meet demand.

Crude oil futures responded as OPEC had hoped they would to news that the cartel would cut production by a further 500,000 barrels per day next year.

Light, sweet crude futures ended the week at $63.49 on London's ICE Futures and $63.43 on the New York Mercantile Exchange, up more than 2% from the week before.

Gasoline and heating oil futures rose by 4% and 1% respectively while gasoil futures in London pulled back most of its losses to end the week down just 1%.

Time will tell if maintaining such high levels will be a mistake by the world's major oil exporters in the longer term.

The US, Japan, China, India and South Korea--five nations with troubled, intertwined histories and trust issues that would under any other circumstances thwart any kind of group collaboration--were galvanized into action.

They spent the weekend in Beijing examining ways to move away from oil dependency.

It will take a long time for the seeds planted in Beijing over the weekend to bear fruit, and many of the ideas will likely lead nowhere.

But some of the ideas will open new energy avenues away from oil, and therefore away from OPEC.

A deal announced over the weekend, which will see China buy four nuclear power plants and a host of new technologies from the US, was clear evidence of that.

Created: December 18, 2006