OPEC said it would maintain production levels. The cartel defended its decision by noting that the world’s economy is barely out of recession. The current $90 price of oil was hardly mentioned in OPEC comments.
It was no coincidence that as OPEC announced its intentions, gasoline prices hit a two-year high in the US based on AAA data. Last week’s average price for regular was $2.98. The price per gallon has moved higher most weeks over the last two months. It may not go higher now, but if crude does not back down, there will be no relief for drivers early in 2011.
A major argument behind why oil prices have increased is that China’s appetite for crude has risen rapidly. The People’s Republic said inflation was 5.1% last month. Producer prices where even higher. Fuel costs played a part in that.
The weather in the northern hemisphere is likely to reach record lows this winter, which should push up the cost of heating oil. China’s PMI is such that demand for commodities is likely to rise. The same holds true in other emerging economies which include India and Brazil.
US prices at the pump do not matter to OPEC. The carter has decided that crude is not high enough yet to do severe damage to GDP growth. What the mind cannot imagine, the eye cannot see.
Douglas A. McIntyre
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