OPEC’s Price Target
Posted March 17, 2010 at 7:47 am 
Filed in: The price of oil continued its steady upward climb yesterday as OPEC member nations decided that changes to their output ceiling would not be needed this year. NYMEX crude futures are trading at over $82 per barrel this morning.
At least publicly, OPEC has expressed its preference to keep prices around $80 per barrel. This is interesting because prices are now clearly exceeding this level—in part at least because they have stated they will not raise production. Algeria’s energy minister said he believed oil prices would average $75 to $85 per barrel this year, reaching the higher end nearer the close of 2010.
Another interesting aspect is that they do not expect to raise production at any point this year. Spare capacity is admittedly high, but recovery in emerging nations has been especially rapid and is forecast to continue—the International Monetary Fund now estimates that Chinese economic growth will reach 10 percent in 2010, a full percentage point higher than its October assessment. (Could demand force prices higher?)
We will wait and see whether oil prices do indeed level-off around $80.
The cost of this oil is a serious problem for consuming nations like the United States. It hurts consumers and it diverts resources away from other important needs. One year ago, our oil imports were costing just under $1 billion per day. Today, they are costing over $1.6 billion.
Any trust we might have in a cartel is unfounded. OPEC operates to extract the most value that it can. Until prices are sufficiently high to significantly curtail demand, OPEC does not have a strong incentive to rein them in.
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