In an ironic twist, oil prices rode to a record high on the same day OPEC agreed to open its taps. Earlier today, the Organization of Petroleum Exporting Countries said it would boost production by 500,000 barrels a day, a move forced on the cartel by worries about the possibility of a housing-induced U.S. economic slowdown.
OPEC said the higher output begins Nov. 1 and that the increase would be based on its current production--a move seen as more than just a symbolic gesture. Oil finished the day 1% higher at a record $78.23, besting by two cents the record set July 31. Since the beginning of the month, crude has climbed 5.7% and is up 28.1% year-to-date.
Cambridge Energy Research Chairman Dan Yergin says OPEC's move today is all about its concerns about the U.S. economy, and he doesn't believe this will be OPEC's final volume adjustment either. "Some countries are unlikely to hit their targets, and some maintenance will be going on. But it does reflect an intent to put an $80 ceiling on the price," he says, noting oil will likely touch that level soon.
Yergin, also CNBC's global energy analyst, says oil prices have positive momentum for now, and he expects prices to continue to be pressured by supply concerns. "This reflects two sides to the current economic uncertainty. The exporters don't want to be seen as adding to the economic uncertainty and risks," Yergin writes to us. "That concern has been mounting. At the same time, they remember too well increasing output a decade ago at a time when the Asian economies were heading south. Thus this compromise."
OPEC's new output target is 27.2 million barrels a day. OPEC supplies about 40% of the global demand for crude. "It is a decision with a message--adding some reassurance. The actual 500,000 barrel per day increase won't come until November, when things should be a lot clearer in the global economy." says Yergin.
Yergin says the exporters are next scheduled to meet at an oil summit in mid-November and then at an extraordinary conference scheduled for December 5. "A lot should be clearer by then," he says.