Singapore, 1 April 2010

OPEC member countries have resumed work on 35 new projects that will increase production capacity by 5 million barrels a day, adding to concerns that the increasing world capacity will dampen oil prices. News reports from the International Energy Forum in Cancun, Mexico cited OPEC secretary general Abdalla Salem el-Badri as saying that the increase in oil prices to current levels of $80 a barrel has enabled the group to revive $45 billion in projects that were suspended when oil prices neared $30 a barrel early last year.

In a paper presented at the meeting, OPEC reiterated the cartel’s belief that a price of $70 to $80 a barrel was the right price for the next decade – high enough to support further exploration and production, but not so high as to dampen economic recovery.

The 35 projects now back on track are among some 150 in OPEC countries that will raise capacity by a total of 12 million barrels a day. A recent report estimated that OPEC, which produces about 40% of the world’s oil, already has 6 million barrels a day in spare capacity at current production levels.

Other reports from Cancun said that the IEF, which brings together major oil producers and consumers, is working with the International Energy Agency and with OPEC to increase market transparency and reduce oil price volatility. The objective would be to avoid huge price fluctuations like the $115 swing in 2008 between the high and the low.

The joint plan will be discussed at the meeting and made public at its conclusion, according to news reports. Bloomberg reported that IEF secretary general Noe van Hulst said oil’s “dual personality” as a physical commodity and financial asset must be kept in mind in reducing price volatility.

Some analysts are forecasting that increased demand from China and other emerging economies will push oil prices toward $100 a barrel. But oil has traded in a range of $70 to $85 for much of the year so far, falling back whenever it gets close to the top of that range.

Other analysts say rapid increases in production by Iraq, which is currently exempt from OPEC production quotas, as well as from non-OPEC countries is putting downward pressure on prices and threatening OPEC’s ability to maintain their desired range.

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By Darrell Delamaide: www.oilprice.com