OPEC PRICES OIL FOR ‘GREAT RECESSION’

Yergin: Oil users will have more impact on price
March 12, 2009 (Bloomberg News via Houston Chronicle)

"The direction oil prices take will depend more on a meeting of world leaders in London next month than on what the Organization of Petroleum Exporting Countries decides this weekend, said Daniel Yergin, chairman of Cambridge Energy Research Associates. Efforts to boost global growth will be more meaningful to oil markets than whether OPEC decides to cut oil output because prices reflect the economic slowdown, Yergin said in an interview…

"'GDP is going to determine the price,' said Yergin, author of a Pulitzer-Prize winning history of oil. 'We're now in the Great Recession, and that's what the price reflects.'"

click to enlarge

"Oil has fallen…from a high of $147.27 a barrel on July 11…to $42.33 [on March 11]… OPEC has reduced daily production targets by 4.2 million barrels since September…[OPEC] is likely to reduce output again…More important to understanding where prices will go from here is what world leaders do when the Group of 20 nations meet April 2 in London to try to boost the world economy, Yergin said.

"The U.S. and other Group of 20 nations must seek agreement on a coordinated response to the global economic crisis, U.S. President Barack Obama said…European Union governments have rebuffed U.S. calls to take more fiscal stimulus measures."

"Global leaders will decide "the balance between more regulation and more stimulus" at the April meeting, Yergin said. "We'll get both, but the drive will be for a coordinated global stimulus" where, for example, the U.S. and China agree to work together, he said. 'Oil is not only the world's most important commodity, it's a barometer of the global economy,' Yergin said. 'It's telling us the global economy is sick.'"

click to enlarge

"There is now between 6 million and 7 million barrels of spare production capacity for oil worldwide, Yergin said. OPEC, 'like everyone else, is trying to understand the depths of the recession,' he said. Demand for crude has fallen by 1.8 million barrels a day so far in 2009, on top of a 550,000 barrel-a-day drop last year, he said…'It really reflects the fact that the recession has gone global.'

"He said OPEC members will not be able to boost prices enough to further weaken the world economy. Yergin expects prices to average $45 a barrel this year, based on the drop in demand, and said a floor had been established in the upper $30 range."