If the idea of oil prices in the upper $70s a barrel has you thinking that OPEC may decide to increase its output during this week's meeting, you may want to think again. So far all signs are pointing to the fact that OPEC is confident that no increases will be necessary at this point, and that oil supplies are more than adequate where they are.Last week when oil prices were once again testing record high levels, I pointed out how OPEC had already stated that OPEC member nations have seen no need for an increase in output. Today we got another indication of that when Iran's oil minister made the same assertion.
Typically when oil prices move to the extremes of their trading range, OPEC feels the need to adjust its supply of the precious crude, but according to Iran's acting oil minister, Gholam Hossein Nozari, that is not the case this time around. Nozari said today that in fact OPEC feels very little pressure to let more oil flow and that "there is enough crude in the market."
Normally we would expect to see prices drop a bit this time of year as we move out of the heavy summer driving months. This happened last month, but the past few weeks has seen oil take off strongly to the upside on geopolitical, supply and weather (hurricane) concerns. What is alarming is that we are not too far away from the winter months when prices usually move higher due to heating oil supplies. (Yes, in case you haven't noticed, the summer is just about over...)
Some analysts have voiced concerns that OPEC is just being greedy at this point and that the cartel is just trying to keep prices higher to make their pockets fatter, but this may be a bit unfair. It is true that the winter months will increase demand, but there is also a distinct possibility that the subprime mortgage crisis will lead to a slowing economy that will demand less oil in the upcoming months.
OPEC definitely has a lot to discuss, but for now it seems pretty obvious that output will remain exactly where it is (25.8 million barrels a day) until at least December when the group will meet once again to discuss output.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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