Oil rises as OPEC holds out

Global Oil Prices

The Organisation of Petroleum Exporting Countries (OPEC) has announced it will hold its production quota steady as it believes demand should pick up later in the year to use up extra barrels.

As a result of the cartels decision to hold output, alongside signs of improving US energy demand, world oil prices climbed.

OPEC's 12 member countries have in recent days pointed to high oil inventories, low demand and recovering crude prices for reasons why the cartel which pumps 40 percent of the world's oil does not need to change its ceiling.

But with economic recovery still looking fragile as powerhouse China considers curbs on credit, OPEC members are likely to be asked to comply with production levels set in December 2008 to keep supply at 24.84 million barrels per day (bpd), the group's official oil production quota.

Saudi Arabia, OPEC and the world's largest oil producer, is pumping around 8.1 million bpd - more than double its nearest competitor in the group, Iran. The kingdom has plenty of spare capacity which makes it the most flexible member of the group to meet consumption changes.

Global oil growth

Global oil growth is widely expected to grow by around one million barrels a day with much of this growth happening in Asia where emerging economies are generating a fierce thirst for energy. The International Monetary Fund (IMF) expects China's economy alone to expand by 10 percent this year.

VTB Capital analyst Andrey Kryuchenkov said the market expected OPEC to sit tight, while the focus would soon switch to the weekly energy inventories report from the US government's Department of Energy (DoE).

"It is as expected, but to be fair, fundamentals of supply and demand will be back in focus with the US energy inventories data," Kryuchenkov told AFP.

"OPEC is responding to growth in the same way central banks are, in some way. They don't want to move until a nascent expansion turns into a more solid expansion, they don't want to raise production too soon," said Jason Schenker, president of Prestige Economics.

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Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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