Are the OPEC Cuts Beginning to Bite?

Posted by: Stanley Reed on January 07

Chekib Khelil, the Algerian Energy Minister and recent President of the OPEC conference, thinks so. Reached by telephone, Khelil said “prices are going to go back up; they are already back up because of the application of the caps we enacted in Oran.” (OPEC agreed to an estimated 2.2 million barrels per day in cuts at its meeting in Oran, Algeria on Dec. 17. Prices have risen sharply off their recent lows to about $49 per barrel.

“Everyone committed including Algeria,” he continued. “The caps will be fully implemented by the end of Feb. We are already seeing the impact on the market. Of course, the situation in the Middle East (the fighting in Gaza) has an impact on it; also the conflict between Ukraine and Russia has an impact on the oil market.”

Khelil was optimistic on the world economy which he said would likely recover in the second half of 2009. That would lead to prices rising to $70-$80 per barrel, he said.

In a note, Barclays Capital, a London-based investment bank, said there were indications that OPEC was delivering on the promised cuts. The bank said that “evidence of OPEC compliance with cuts agreed in their December meeting continues to emerge, with Iran cutting oil supplies to at least two of its Asian refiners by 14% this month. Kuwait, too, has notified at least three Asian lifters that it plans to reduce their allocations by 5% later this month.”