Oil price steady after Opec vetoes cut

The decision to leave output unchanged left the oil price barely changed this week.

Opec's decision to leave output unchanged left the oil price barely changed this week, despite warnings that current levels above $45 per barrel could not be supported without a new round of production cuts. The group of oil-exporting countries met Sunday in Vienna amid expectations that they would cut production, but elected to continue current output quotas as they pledged to help the world economy recover.

Although prices initially fell Monday by 5.7 per cent, they quickly rebounded and traded today at $47.63, more than a dollar higher than last Friday. Markets?almost counter-intuitively?read the OPEC decision as a sign that oil supplies had been sufficiently restricted and prices were on an upwards trend, said Paul Horsnell, the head of commodities research at Barclays Capital in London. "The market interpreted it as a sign of strength instead of weakness," Mr Horsnell said. "It's saying right, they're [OPEC] obviously looking confident, in addition to the general improvement in sentiment in the last few weeks."

Conversely, an output cut may have been read as a sign of market weakness, an indication that Opec ministers knew something that markets did not, he said. Supplies have "really tightened" since Opec decided in December to reduce output by a total of 4.2 million barrels per day compared to Sept 1 production levels, Mr Horsnell said. Opec members have met an estimated 80 per cent of that cut, representing a relatively high level of compliance for the group.

At a press briefing in Vienna, Chakib Khelil, the Algerian minister of energy and mines, told newswires that compliance would improve to 95 per cent by May, and oil prices would rise to $60 by the end of the year. [e-mail]