Commodities | Feb 22 2008
By Chris Shaw
Oil has traded both sides of US$100 per barrel in the past couple of days and Commonwealth Bank commodity strategist Tobin Gorey suggests price volatility will remain a feature of the market at least until the upcoming OPEC meeting on March 5th.
His best guess as to what OPEC will announce at the meeting is for no change to output, especially as at its February meeting the group concluded commercial oil stocks were in line with seasonal trends and the first half of 2008 was likely to see a build up in oil inventories.
As Gorey notes the oil market remains tight, but not to the extent that an increase in production by OPEC is needed. On OPEC numbers demand for its oil should be something around the 31.5 million barrel per day mark this year while group production is forecast to be 32 million barrels per day.
Add in the seasonal fact oil demand tends to dip as the northern hemisphere comes out of winter and there is certainly a case in Gorey’s view for production to remain at current levels, particularly as to cut production when prices are at or around US$100 per barrel would likely encounter significant criticism.
As a result Gorey sees no change to OPEC output levels at next month’s meeting, though the scheduling of a further meeting in the near future to alow for a further review of market conditions is a distinct possibility.
Leading into the meeting the bank has not changed its expectation of prices easing over the course of the year but remaining at what are historically high levels.