OPEC signaling era of expensive oil, analysts say

OPEC signaling era of expensive oil, analysts say

Michael Adler, Agence France-Presse, Vienna

A decision by OPEC to suspend its low price target for crude
oil and members' comments that high prices have not hit world
economic growth are clear signs of a new era of expensive oil,
analysts say.

OPEC decided at a meeting in Vienna on Sunday to keep oil
production steady in the face of increased cold weather demand
during the northern winter but also hinted that high prices for
crude were here to stay and that it may cut output soon.

"Prices are likely to remain higher than past averages," Adam
Sieminski, an analyst with Deutsche Bank in London, told AFP on
Monday.

The inflation-adjusted price for oil over past decades is
about US$25 a barrel, Sieminski said, adding that while the $55-
dollars-a-barrel oil spike last year "was a short-term
phenomenon" the 11-nation Organization of Petroleum Exporting
Countries( OPEC) had a "realistic" chance of sustaining prices
above $30 a barrel.

OPEC, which supplies nearly a third of the world's crude oil,
refrained from cutting back on output with demand expected to
slacken ahead of warmer spring weather in the United States and
Europe and maintained "currently agreed production levels" of 27
million barrels per day (bpd), a joint statement said.

Raja Kiwan, an analyst from Energy Intelligence Research
publishing house in London, said that OPEC was just trying to
avoid "taking a sort of political responsibility for what's
happening in the market", where winter weather and insecurity
about hotspots like Iraq is keeping prices high.

OPEC doesn't want to create a backlash against it for
stubbornly high prices in consumer countries, where people are
groaning about their heating bills and how much they are paying
to fill up their cars with gas, Kiwan said.

But he said OPEC would move fast to cut production if prices
fell significantly.

In another key move, OPEC "temporarily" suspended its target
price band of $22-$28 a barrel since "market changes ... have
rendered the band unrealistic", the statement said.

OPEC had adopted the target price band in early 2000 but
prices have soared well above that in the last year.

OPEC president Kuwaiti Oil Minister Sheikh Ahmad Fahad al-
Sabah said a price band of $32-$35 would be "a good price",
remarking that the $22-$28 range was effectively defunct.

In a sign that high prices do not bother OPEC, Fahd al-Sabah
said that in 2004 growth worldwide was still a healthy five
percent and "we think even this year growth will continue at 4.1
percent, even with security factors".

Sieminski cautioned, however: "This is an easy statement to
make when global gross domestic product is growing at one of its
fastest rates ever. But when world growth slows down, the impact
of higher prices might become more apparent."

Another analyst, Bruce Evers of London's Investec Securities,
said that OPEC was probably looking to defend a $40 a barrel
price for oil.

He said that Saudi Arabia, the world's largest producer of
oil, had "a massive (domestic) social spending plan" and needed
revenue.

"The markets are coming around to the realization that prices
in the 40's don't damage the world economy, especially with the
weak dollar," Evers said.

Analysts agreed that the oil market was very tight and that
the evolution of prices depended on factors such as demand from
booming developing economies like China and supply from troubled
producers like Russia and even OPEC states such as Saudi Arabia,
which still needed investment and time to increase its production
capacity.

Sunday's election in Iraq, an OPEC member but not included in
the cartel's production quotas, was seen as a hopeful sign, with
a high turnout and limited violence. "This could take some fear
premium out of the oil price," Sieminski said.

"Maybe Iraq can keep its production at two million bpd
(barrels per day)," he added.

World oil prices fell below $47 a barrel on Monday with New
York's main contract, light sweet crude for delivery in March
dropping 67 U.S. cents to $46.51 a barrel in electronic deals.

"No oil export infrastructure was attacked (on election day)
so oil output from Iraq continues," said Victor Shum, an analyst
at energy consulting firm Purvin and Gertz in London.