OPEC keeps output steady to help heal sick economy

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(Agencies)
Updated: 2009-03-16 08:25

"I think generally speaking it's a sensible decision and one that the IEA could welcome given the strains that are being faced by the global economy," David Fyfe, head of the oil industry and markets division at the IEA, told Reuters.

"The last thing we need in the short term is an abrupt surge in oil prices."

OPEC's cuts since last September have helped to pull prices up from a low of $32.40 in December to around $46 now.

But levels are still just over $100 below last year's record high of nearly $150 and the group cannot forget the price crash of the late 1990s when oil fell toward $10 a barrel.

Although cheaper oil in the short term can help offset what the OPEC statement referred to as "the worst global economic recession in decades," OPEC ministers have said the risk for the longer term is that it inhibits investment in new production, which will drive the price back up again.

Saudi Arabian Oil Minister Ali al-Naimi echoed comments by King Abdullah last year that a reasonable price for oil was about $75.

"It's what we have said before. If you want the marginal producers to produce, all the poor guys that are shutting down their wells now, they need something about $70-$75. Everybody would be happy," Naimi said.

The other big risk as far as OPEC is concerned is that inventories will rise sharply as demand shrinks in line with a seasonal fall off in energy use as well as the downturn in economic activity.

Oil inventories are already running at the equivalent of nearly 59 days of forward cover -- compared with the 52 days the producer group considers comfortable.

As a precaution, OPEC has called another meeting on May 28 at the group's headquarters in Vienna.

Analysts predicted the immediate price reaction when the oil market resumes trade on Monday would be negative, but that was no bad thing, even for OPEC.

"At the moment, getting the world back on its feet is more important than lifting the oil price by a further $10 a barrel," said Lawrence Eagles of JP Morgan in New York.

"The world economy is crucial. Short-term gain would be to the long-term detriment of OPEC."

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