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Tom Nicholls: Opec keeps production steady

As expected, Opec rolled over its oil-production quotas at its meeting in Vienna today. With oil futures trading at over $100 a barrel, consuming countries such as the US had lobbied the producer group to release more oil onto the market. That, though, was always unlikely: oil demand experiences a seasonal dip going into the second quarter and Opec is usually inclined to cut production to shore up prices at this time of year. The cartel has also repeatedly underlined its fears that wobbles in the US economy will soon feed through into lower oil demand.

It claims bottlenecks in the refining industry bear greater responsibility for high oil prices than any shortage of crude oil. And it has pinned recent oil-price inflation on the influence of speculators and the weakness of the US dollar, which has fallen in the wake of cuts in US interest rates, as opposed to supply shortages.Several of those points were reiterated in an Opec statement today. The US’ economic slow-down and the “deepening credit crisis in financial markets” are “increasing the downside risks for world economic growth and, consequently, demand for crude oil”, the organisation said.Opec claimed the market is “well-supplied” with oil and that commercial oil stocks are above their five-year average. Present prices, it added, do “not reflect market fundamentals, as crude oil prices are being strongly influenced by the weakness in the US dollar, rising inflation and significant flow of funds into the commodities market”. It even alluded to the prospect of a reduction in supplies, saying that it had decided to keep output steady “in spite of the seasonally low demand in the second quarter”.The immediate impact on prices was bullish: US light crude futures were trading up $3.28 in the wake of the decision at $102.80 – approaching Monday’s record of $103.95/b, the highest oil price in history, after adjusting for inflation. Brent futures were also trading comfortably above $100/b.