ABU DHABI, United Arab Emirates - With oil prices backing away from record levels, but nervous traders poised to bid them up, OPEC oil ministers will have a tough call tomorrow on whether to crank up production.
Until a few days ago, the markets were betting that decision-makers at the Organization of Petroleum Exporting Countries would opt, at their meeting in Abu Dhabi, to increase output in attempts to cool red-hot prices that closed Nov. 23 at a record $98.18 before falling back.
Comments from OPEC members boosted such sentiment. Iraqi Oil Minister Hussein al-Shahristani told Dow Jones Newswires last week that OPEC would consider an additional 500,000-barrel-a-day production boost in Abu Dhabi.
Oil prices tumbled in anticipation of such a move, along with fears for the health of the U.S. economy, leaving prices down nearly $10 by Friday - the biggest correction ever in nominal terms.
Two days ahead of the OPEC meeting, the price of light, sweet crude for January delivery rose 60 cents to settle at $89.31 a barrel on the New York Mercantile Exchange.
Also pressuring prices downward are reduced demand growth forecasts from both OPEC and the International Energy Agency. And a half-a-million-barrel OPEC-production increase from last month is starting to kick in, along with expectations of increased output from the United Arab Emirates with the end of refinery maintenance there.
Such developments support arguments by key OPEC ministers that the market is well-supplied and has been driven higher by speculation.
Amid the mixed signals, ministers will want to tread carefully - they remember the disastrous fallout from their decision to raise output just before the 1997 Asian financial crisis, only to see oil prices plummet from $20 to $12 a barrel.
Algerian Oil Minister Chakib Khelil said over the weekend that there was no need to increase output, while Venezuela's oil minister, Rafael Ramirez, told reporters: "We don't see a need to increase oil production. . . . The market is well-supplied."
Ultimately, OPEC powerhouse Saudi Arabia will call the shots. But Saudi Oil Minister Ali Naimi was noncommittal ahead of the meeting, telling reporters, "The field is wide open."
In theory, the ministers could leave production levels of the 10 OPEC countries bound by quotas at an estimated 27.2 million barrels a day. But that would increase pressure from key consumers such as the United States and could stall their economies, resulting in less of a market for OPEC oil.
OPEC's total production is 31.5 million barrels daily, factoring in Iraq and Angola, which are not under output restraints. OPEC oil accounts for about 40 percent of the world's consumption.