Wednesday, August 29, 2007

Subprime crisis gives Opec dilemma

by Ed Crooks from The Financial Times

Back on August 14, officials warned in Opec’s monthly oil market report: “The more bearish economic trend which has materialised in recent weeks could negatively impact demand growth in the second half of the year.”Saudi Arabia, the “swing producer” with the only significant level of spare capacity in Opec, holds the whip hand, and it has so far said nothing in public about the forthcoming meeting. But if it agrees with the assessment of Abdalla El-Badri, Opec’s secretary-general, then for the rest of the year Opec’s official oil supply could be held steady – in practice, some countries may be pumping a little more – at a time when demand is still rising. And prices are likely to remain where they are as a result. Julian Lee of the Centre for Global Energy Studies says that for Opec, that would be a mistake. “What the world economy needs is a period of oil prices a bit lower than they are now. Opec would be sensible, from its own point of view as well as everyone else’s, to accept a period of $50 rather than $70 oil.”

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