Briefing: Opec gathers to decide on oil targets

Oil consumers say prices are too high, but will ministers meeting in Abu Dhabi take steps to increase production?
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The Independent Online

Oil and energy ministers of the Organisation of Petroleum Exporting Countries (Opec) will gather in Abu Dhabi on Wednesday their 146th twice-yearly meeting to review the oil market and co-ordinate their policies.

Why is the meeting significant?

In a bid to counter record prices with oil hitting peaks of just under $100 (48.6) a barrel in recent weeks oil consumers hope the Opec cartel will opt to raise output. Given that Opec countries produce around 45 per cent of the world's crude, and 54 per cent of oil traded internationally, any decision over production can have a significant impact on the market.

What does the market think?

Widespread speculation that Opec will raise production saw oil fall back below $90 on Friday. Prices were driven even lower after it emerged that an explosion on a key pipeline from Canada to the US would have only a limited impact on supply. News of a smaller-than-expected drawdown of US energy reserves provided further downward pressure on prices, which slumped by about $10 in New York and almost $8 in London. Tim Evans, an analyst at US investment bank Citigroup, said: "Although minor shocks like the Enbridge pipeline explosion and the most recent, bearish Department of Energy inventory report can tell us something about the general strength or weakness of the market, the big test will be what policy decision Opec arrives at."

What does Opec say about it?

The cartel has insisted in recent months that it is not responsible for higher prices, and that increased supply will not cool a market fuelled by dollar weakness, speculation and lack of refining capacity.

How much is Opec expected to increase production?

Oil markets are guessing that output ceilings will be lifted by at least 0.5 million barrels per day (bpd). Opec last raised production in September, when it agreed to provide an extra 0.5 million bpd to the market from 1 November.

What would higher Opec output do to the market?

That depends on whom you listen to. Opinion is divided over whether a decision to increase output will cut crude prices. Analysts point out that any rise agreed at this meeting would be unlikely to mean extra crude supplies until after the winter when oil prices traditionally peak and US refineries start to enter their spring maintenance period. Several analysts agree that the downward revision to demand forecasts over the past three months, and the November increase in Opec production, make it doubtful more oil production is needed.

What's the outlook for oil prices?

Some analysts believe that if the price drops below $90 a barrel, the fall could accelerate, quickly taking it to $80 a barrel in the next few weeks.

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