Global oil prices burst back through $90 per barrel yesterday after Opec decided against increasing production.
The decision by the oil cartel, responsible for 40 per cent of world output, disappointed the market, which had seen a price drop of about 10 per cent in the days leading up to the meeting on the expectation that it would increase production. Instead, the 13-nation group said it would hold its output at 27.25 million barrels a day because "market fundamentals have essentially remained unchanged, with the market continuing to be well supplied and commercial crude/ product stocks remaining at comfortable levels".
North Sea Brent crude jumped as high as $91.91 per barrel before ending the day at $89.91, an increase of 45 cents. "This isn't good for the world economy," said Leo Drollas, chief economist of the Centre for Global Energy Studies. "Inflation has picked up, and oil has played a key part in that. The market was anticipating an increase."
The practical effect of the decision on global supply was minimal, but perception moves the market. Saudi Arabia has been incrementally increasing production in recent months anyway and is the only Opec member which can significantly increase output. The kingdom is operating at about 75 per cent capacity, while the rest of Opec members are already at capacity.
Yet amid increasing worries about the health of the global economy and a possible recession in America, the market was hoping for a unified, formal statement by the cartel that more oil would be forthcoming. "The market reacts to news. Holding formal production quotes steady is not helpful," Mr Drollas said.
Opec acknowledged the delicate state of the world economy, however, announcing that it would hold an extraordinary meeting on 1 February next year, a month and a half before its normally scheduled conference, to review its position.Reuse content