OPEC Holds Production Steady Driving Oil to a New High

By Jason Simpkins
Associate Editor

Oil scaled to a record high again yesterday (Wednesday) as the Organization of Petroleum Exporting Countries (OPEC) held output steady, despite repeated pleas from the White House to increase production.

The price of oil climbed as high as $104.56 during midday trading on the New York Mercantile Exchange after OPEC refused to break from its current output of 32 million barrels per day.

OPEC President Chakib Khelil told reporters that supplies of oil in the global market are adequate and any drastic spikes in prices were the result of speculative investing and "mismanagement of the U.S. economy."

"If the prices are high, definitely they are not due to a lack of crude. They are due to what's happening in the U.S.," Khelil said. "There is sufficient supply. There's plenty of oil out there."

However, Khelil also made clear his understanding of the turbulence currently facing financial markets, by pledging to maintain a "constant vigilance" over market conditions. He also indicated that an emergency meeting could be called before OPEC's next scheduled conference in September, should conditions continue to deteriorate.

U.S. President George W. Bush was particularly disappointed in OPEC's decision as he had issued repeated calls for the 13-nation cartel, charged with 40% of the world's oil supply, to increase its output and drive down prices.

"Understand the consequences of high energy prices," Bush said. "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices."

Most analysts, on the other hand, weren't expecting any such action, as an increase in production would have further destabilized financial markets. Whereas a decrease in production would make the cartel vulnerable to any slowdown in global demand. 

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," Anthony Sabino, a professor of business at St. John's University told the Associated Press. "It's not so much the price of oil is going up - it's that the value of the U.S. dollar, sad to say, is slumping."

The dollar hit a new low against the euro earlier this week, dropping 3.5%, to a value of $1.5275 per euro Monday. The dollar has dropped 16% against the euro in the past year.

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