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The trends that have developed over recent weeks continued. Prices started about $40 a barrel on hopes that the US stimulus program will be successful and then fell for 4 days to $34 a barrel due to pessimistic economic news and yet another increase in US crude stockpiles. On Friday, however, prices jumped 10 percent to close at $37.51 as traders closed out positions in preparation for the President’s Day long weekend.
Falling prices brought forth another round of warnings from OPEC officials about the dangers to future production due to insufficient funds for investment and threats to further lower production quotas if prices remain low.
The OPEC Secretariat confirmed that so far the cartel has cut production by about 66 percent or 2.7 million barrels out of the 4.2 million of agreed cuts. Production cutting appears to be continuing, however, and Algerian Oil Minister Khelil is predicting that compliance with the quotas will approach 100 percent by the next OPEC meeting on March 15.
The three major forecasting agencies, the IEA, the EIA and the OPEC Secretariat, released new and lower estimates for 2009 oil consumption as the global economy continues to contract. OPEC is now estimating that demand for 2009 will average 85.13 million b/d while the IEA and the EIA put the number at 84.7 million b/d. Given weak oil prices, the deluge of bad economic news and the endless talk of plummeting demand, for oil, the decline of only 1.2 b/d from the EIA’s 2007 peak average of 85.9 million b/d seems underwhelming. So far this year, US consumption is down only about 250,000 b/d as compared with last year. The EIA is actually forecasting the Chinese demand for oil will increase by 250,000 b/d this year.