Not since January 1991, at the start of the Gulf War, has the price of crude oil hit $30 a barrel. But it happened again Monday, after flirting with that psychologically important level at the end of last week.
Crude oil for March delivery closed at $30.25, up 81 cents, or 3%, on Monday afternoon at the
New York Mercantile Exchange
The supply of oil has steadily dwindled over the past few months, with inventories for the industrialized nations in the
Organization for Economic Cooperation and Development
down 1.7 million barrels a day in the fourth quarter, according to the Paris-based
International Energy Agency
in its monthly oil market report.
Oil supplies can still go lower, "but not without the risk of spot outages and price increases," the IEA said. "In the interim, just the prospect of risk increases price volatility. Although the winter in the Northern Hemisphere has only another month or so to go, refinery runs continue to drop and producers continue to limit crude supply. Operating minima could soon be reached, triggering a worldwide scramble to find oil."
Tim Evans, senior energy analyst at
Pegasus Econometric Group
, expects that at its ministerial conference on March 27 in Vienna, the
Organization of Petroleum Exporting Countries
"is likely to increase production, on the order of magnitude of 1 million to 1.5 million barrels a day, with the increase taking effect as of April 1 without really knocking prices down dramatically."
That would be an increase of 5.75% over the 26 million barrels currently produced daily by OPEC.
"OPEC is looking to maximize revenues on a long-term basis, so that it puts more barrels into the market without driving the price down," Evans said. "If it increases barrels by too much and revenues go down, then OPEC
has messed up."
He cited OPEC's mistake in the fall of 1997 when it raised quotas by 10% and revenues consequently fell by 40%: "It was a mistake to put that much oil into the market," he said. "That's fresh enough in everyone's memory that I don't expect it to happen again."
With crude oil inventories worldwide dropping significantly, that increase "will address a deficit, with inventories of crude oil continuing to decline until May," Evans added.
If OPEC does not take this step, "it does tip the world's economies toward recession," Evans said. "But though OPEC does like the revenue and income, why drive up the price just for the sake of driving up the price? Otherwise, there would be investment in non-OPEC products, which would result in falling market share and OPEC would lose influence in the market over the longer term."
The price of oil has more than doubled in the last year, from a low of $11. 89 a barrel because of production cuts mandated by OPEC last March.