–Weaker Dollar Would Fuel Speculation, Drive Up Oil Prices
–Analyst: OPEC ‘Very Concerned’ About Outlook for 2011

By Brai Odion-Esene

WASHINGTON (MNI) – The increasing likelihood that the Federal
Reserve will ease monetary conditions further, in an attempt to boost a
flagging U.S. economy, has OPEC fearing a resurgence in speculative
investment in commodities, due to a weaker U.S. dollar, that will in
turn lead to a rise in oil prices to uncomfortable levels.

OPEC officials are also “very concerned” about the demand and
supply picture for next year and beyond, and a Saudi oil official said
uncertainty about the future is creating more challenging conditions for
oil producers than did the financial crisis.

“Yes the ministers they are concerned about the dollar situation
and the dollar value at this time,” OPEC Secretary General Salem
el-Badri said at a news conference following the cartel’s general
meeting in Vienna.

In fact the whole world is monitoring in the dollar’s value,
because of expectations of further monetary stimulus from the Fed to
boost the American economy, he said.

That is why OPEC remains concerned about “what that additional
stimulus package will do to the value of the dollar,” and oil market
conditions in 2011, he said.

He warned that a cheap dollar would fuel more speculation in the
commodity markets, especially in oil.

David Kirsch, director of Market Intelligence with energy
consultants PFC Energy, said OPEC ministers are concerned that if the
Federal Reserve implements additional quantitative easing, there will be
a surge of dollars into the oil market and prices will be inflated.

“There is concern that with quantitative easing this additional
liquidity is not going to go … into real economic activity but instead
will be used by speculators to build up assets, including oil,” Kirsch
told Market News International in a phone interview from Vienna.

OPEC worries that speculation would raise oil prices above levels
that are comfortable for consumers at the moment, he said.

Asked at what level oil prices would pose a threat to the global
economic recovery, OPEC’s el-Badri assured that “if we see a shortage of
supply, OPEC will intervene and balance the market.”

WTI crude is currently trading at about $83.31 a barrel, after
hitting a five-month high of $84.43 last Thursday, but el-Badri said he
does not view oil prices as high.

OPEC members want an oil price that will provide them with a decent
income and allow investment in new production, he repeated. “The price
at this level, if things stay the same, is comfortable for us.”

Kirsch said OPEC has not really decided on what price is too high
for consumers, but “they’ll know it when they see it.”

In its statement to end Thursday’s general meeting, OPEC noted that
although an economic recovery is underway, “there is still considerable
concern about the magnitude and pace of this recovery, especially in the
major industrialized countries of the OECD.”

In addition, despite some easing of the overhang in crude oil
stocks, market fundamentals remain weak, with refinery utilization rates
low and product inventories rising considerably.

“Accordingly, based on its detailed analysis of important market
drivers, which clearly reveals that the market remains well supplied,
and given the persisting significant downside risks to world economic
recovery, the Conference decided to leave current production levels
unchanged,” OPEC said.

Saudi Arabia’s Deputy Minister of Petroleum Abdulaziz bin Salman
bin Abdulaziz al-Saud, who attended the news conference with el-Badri,
described the current environment facing oil producers as “much more
challenging” than during the financial crisis.

Producers are finding it harder “to figure out the uncertainties of
the future and subsequently dedicate the right resources to be ready to
attend to future demand,” he said.

Kirsch said OPEC is “very concerned” about the outlook for 2011,
which is why they continue to stress compliance with production quotas.

“They do think that they need to probably curb production a little
bit,” Kirsch said, although right now, the cartel still believes only
some fine-tuning is needed, not drastic measures.

Still, there remains real concern on OPEC’s part that the economic
recovery will not be strong enough to lift oil demand enough to draw
down the overhang in oil inventories currently being seen.

If the recovery is unable to increase oil demand, OPEC will
“absolutely” make additional cuts in production, Kirsch said. “I think
if you see some real price weakness, we could very well see further cuts
in 2011.”

OPEC, in its closing statement, also reaffirmed its determination
to ensure reliable supply to the market, “at reasonable and fair prices,
supported by an adequate level of spare capacity for the benefit of the
world at large.”

OPEC reiterated its committment to optimizing the pace of members’
capacity expansion so they are able to respond to expected growing
global demand and increased calls on OPEC crude in the future.

Member nations remain firm in their intention to swiftly respond to
any developments “which might jeopardize oil market stability and their
interests,” the statement said.

** Market News International Washington Bureau: 202-371-2121 **

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