OPEC: we do not decide price

The new price record follows the release of data showing a bigger than expected drop in U.S. inventories last week.

Nymex Light Sweet Crude is currently hovering around $US 79.70 per barrel.

It comes only a day after OPEC announced it would boost oil output in an attempt to calm worries over the possible economic effects of rising prices.

In deciding to boost output by 500,000 barrels per day, OPEC had to balance concerns about the possible economic effects of crude in the mid-to-high $US 70 per barrel range, against the possibility that demand could drop if the U.S. economy deteriorated in the wake of the sub-prime crisis. Almost as soon as the decision was announced, analysts were suggesting its effect would be limited in the short term.

“The decision to increase output was less likely, according to us. But even so, we do not think this will have a significant impact on oil prices,” according to Aleksandr Razuvaev, Head of Research at Sobinbank in Moscow.

Wednesday trade in New York saw the the price spiral to a series of new intra-day highs beyond the old benchmark of $US 78.77 per barrel, as U.S. inventory data showed a greater than expected drop in crude reserves.

However, on the same day, the International Energy Agency said oil demand for the rest of this year and into 2008 will be lower than previously forecast and analysts are seeing a longer term drop in crude prices as likely

“We believe that in the long term we may see substantially lower oil prices and the increase in the OPEC quotas actually will provide long-term support for those prices because  they are simply trying to preserve demand, not to damage demand so it should be good for oil prices in the long term,” commented Dmitry Lukashov, oil and gas analyst at Alfa-Bank in Moscow.

During Tuesday’s announcement the OPEC secretary was clear that OPEC was not targeting a specific price

“OPEC does not decide on the price. We do not have a price target. We just leave this to the market,” stated Abdalla El-Badri, the Secretary of OPEC.

But despite this statement, for traders in the short term and for consumers and economists in the long term, it is the price which will continue to dominate headlines. The possibility of the price reaching $US 80 dollar per barrel followed by a possible slowdown in demand just as OPEC lifts production makes all predictions tricky.