Opec in dilemma as oil prices approach $80

Opec is expected to keep its output unchanged at its meeting this week, ignoring pleas from rich countries for more supplies as crude prices approach $80 per barrel.

But the Saudi Arabia-led club is seen as facing a dilemma: it seeks high oil prices to maximise its income, but it wants to avoid a global economic slowdown caused by expensive crude.
The downside risks for the global economy are elevated at the moment, with the impact of a crisis in the US housing market and recent turmoil on financial markets still unknown.

Some economists have argued that a fall in oil prices induced by an increase in output by Opec would boost the world economy and help it to absorb the drag caused by US housing defaults and tightening credit conditions.

But oil market analysts believe Opec is unlikely to to take the risk at its meeting on Tuesday, with members mindful of when they increased production in 1997 just as the Asian financial crisis was unfolding.

Fears of a recession and reduced demand sent oil prices into a tailspin and they crashed to 10 dollars in 1999.

“The market continues to draw support from speculations that the group is likely to leave its output unchanged during their next meeting,” said Michael Davies, analyst at the Sucden brokerage in London.

Gulf Daily News