Oil Prices Shoot Up Based on OPEC Speculation

There has been another flare-up in the price of oil, the most in more than one week, as speculation is rife in the markets about OPEC deciding to cut oil output yet again, the second time this year. Such a cut is probably aimed at ensuring that the oil prices stay hiked up, instead of falling down. OPEC had stated in October its intention to shave off oil output by 1.2 million barrels a day. A recent Bloomberg news survey gave the umber as 550,000 barrels lesser a day.

While there has been concern in the market about the rising prices, the President of OPEC, Edmund Daukoru, stated that there existed a general consensus among member countries of OPEC regarding the reduction in oil output. Evidence of this being a distinct possibility is the agreement of Iran and Qatar, both OPEC members, on this issue. Oil ministers from these countries have generally suggested the possibility of such an event happening.

Brent crude oil also rose by 51 cents to $62.35 per barrel on the ICE Futures exchange in London. On the New York Mercantile Exchange, the price of crude oil for January delivery increased by 70 cents a barrel, or 1.1%, and was priced at $61.92 per barrel at 11:03 a.m. This has been the single highest gain in a day since November 29.

According to Phil Flynn, who is a commodities trader at Alaron Trading, a firm based in Chicago, the idea of OPEC making an additional reduction in production of oil was to let everyone know that they are united and serious, and that we would see improvements in compliance in future. Another opinion was that OPEC wanted to make a cut and actually do it from actual production instead of from the quota levels. This was what Tom Bentz, who is an oil broker with BNP Paribas Commodity Futures Inc., New York, had to say.

However, there could be a drastic sell-off in prices if the OPEC members did not actually manage to agree on this additional cut in oil supply, according to a report by Edward Meir, an analyst at Man Financial Inc. in Stamford, Connecticut. His report states that OPEC’s inability to engineer such a reduction would not be received well by the markets.

OPEC members are apparently happy with a price of about $60 a barrel, said Ali Jarrah al-Sabah, the oil minister of Kuwait, according to the state-run Kuwait News Agency. There was no specific reference to the actual benchmark the minister was referring to.