OPEC is unlikely to boost oil production amid rising prices because global inventories are still above five-year averages, said Jeff Currie, London-based head of commodities research at Goldman Sachs Group Inc.
“It’s still too early for OPEC to be raising production and their decision historically has not been price-based,” Currie said today in an interview. “The key driver of their decision to raise output will be when inventories will reach the five-year average.”
Oil has risen 17 percent over the past year, raising concern it will fuel inflation and damp economic growth. The Organization of Petroleum Exporting Countries, responsible for about 40 percent of global crude supply, has reduced compliance with output quotas agreed to in 2008. The group said today it would have to increase supplies to meet rising demand from emerging economies.
The global economy has so far been able to absorb oil’s advance to $99 on the spot market, Currie said. “Is this creating all these issues people were concerned it would? The answer is no.”
Commercial oil stocks in the Organization for Economic Cooperation and Development rose by 0.7 million barrels in October to 2.75 billion, 56 million barrels above the five-year average level, according to the International Energy Agency.
West Texas Intermediate crude prices in the U.S. are likely to remain volatile given the grade’s landlocked delivery point at Cushing, Oklahoma, increased flows of Canadian crude into the U.S. Midwest and the onset of refinery maintenance season, Currie said.
“Prices for WTI are going to be more volatile relative to global prices,” he said. The grade is “is not reflective of the global picture.”
WTI’s “significant discounts” to comparable crudes such as Brent and Louisiana Light Sweet were expected to persist, Goldman said in a Jan. 10 research report. The bank forecasts WTI will average $100 a barrel in 2011 and $110 in next year.
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