U.S. Crude Oil prices ranged between 85 and 90 dollars for the barrel, ahead of the extraordinary meeting of the OPEC Ministerial Council in the Ecuadorian capital Quito on the 11th of this month, in some instances exceeding 90 dollars last week. However, the council is not expected to approve production increases in its extraordinary meeting, despite the increase in prices,. The problem facing OPEC lies in the fact that at present, there is no correlation between price increases and supply shortages to the market. Instead, there is equilibrium between supply and demand. Subsequently, any additional supplies in light of this equilibrium will go to commercial inventories. Should the latter rise beyond their traditional levels, this will lead to an artificial decrease in prices, i.e. one that is not based on market dynamics. OPEC is concerned by artificial increases in commercial inventories in the event of a global economic downturn, and a subsequent drop in demand for oil, which may lead to a collapse in prices that would spiral down out of control. The current price range surpasses the 75-85 dollar spectrum that OPEC officials said is desirable, and it is clear that this increase in prices is an ongoing trend. Price increases may be attributed to a number of reasons. These include rising consumption levels in China as a result of its sustained economic growth, the severe cold wave in Europe, and the dollar value. However, there is also a new factor that led to soaring prices, namely increased oil consumption in the United States, despite the economic crisis persisting there. The statements made by officials in OPEC member states indicate that prices may exceed the 100 dollar level in light of current supply and demand dynamics. Several U.S. investment institutions predicted that prices will exceed the 140 dollar level in the coming period. Some ministers also surprised the markets by stating that the 90 dollar level is an expected and acceptable price, although their past statements had reaffirmed their support for a 75-85 dollar price range. This begs the question of what the future price range desired by OPEC may be. Is it 75-85 dollars, or is the current hike in prices acceptable for OPEC, and does the organization thus believe that 90 dollars and above is a reasonable price? In truth, this price range has been welcomed by all producing countries, since it helps their economies, especially in the wake of the collapse of prices to around 30 dollars for the barrel in the past. It has also been welcomed by the major industrialized countries, as this range helps attract investments in alternative energy industries. But now that a progressive and unchecked upward trend has taken prices to high levels, there indeed is a problem facing OPEC. The organization must announce the price level it aims to achieve, and most importantly, how to maintain it. In other words, what is the production policy that must be pursued, or what is the new production level? Announcing and adhering to the desired price range are both important in order to maintain the credibility currently enjoyed by OPEC, after years of questions surrounding its policies. OPEC is well aware that the global economic crisis is yet to end, and that its repercussions continue to undermine the credibility of some of the world's most prestigious banks, not to mention confidence in the euro (of course, oil has nothing to do with the European financial crisis). OPEC or its ministers can, without a doubt, insinuate the desired price range and their vision for how to maintain it, by means of appropriate statements followed by production adjustments when necessary. The Quito meeting is thus a good occasion to give the appropriate message to markets, through announcements or insinuations, and without any change in official production levels for the time being. This might help curb soaring prices or avoid their unhealthy rapid ascent. Moreover, clarifying OPEC's production policy during the Quito meeting is crucial, especially as the global economy has been facing several crises. This is not to mention that the alternative energy industry is now on the rise. It will find large support in light of very high oil prices, the negative impact these may have on the economies of developing nations and the limited-income segments of society. *. Mr. Khadduri is an energy expert
