Oil prices reached a record $57.50 a barrel with traders worried taht that OPEC’s production increase won’t live up to demand.
A Bloomberg article says, “A 50 percent surge in prices in the past year may hurt the world economy and cap growth in oil use, said Richard Savage, global head of commodities research and strategy at Bank of America in London. OPEC raised its output target to a record 27.5 million barrels a day yesterday and will let inventories rise in the second quarter, when consumption usually drops.”
“It’s an admission that they don’t have any spare capacity left,” said Simon Wardell of Global Insight. “If they don’t let stockpiles rise, they won’t be able to cope with demand this year.”
According to a Forbes article,
Members of the Organization of Petroleum Exporting Countries members meeting in Iran on Wednesday agreed to boost the group’s output quota by 500,000 barrels a day, or 1.9 percent.
The market was unimpressed with the decision, because members of the oil cartel who are supposedly bound by its production quota are already exceeding the previous ceiling by about 700,000 barrels a day – meaning no extra supply will actually be added.
OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah also said the additional barrels may not come until May, since members are already supplying more than planned.
“This is not about lowering prices. It’s about stopping them skyrocketing,” Yasser Elguindi of Medley Global Advisers said. “We are going to be either side of $50 with spikes to around $60.”
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