OPEC is expected to keep production unchanged when the oil cartel meets today - a decision that is likely to keep oil prices high for rest of the year and well into 2005.
That raises the prospect of oil prices remaining above $25 (€20.38) a barrel for the sixth year in a row in 2005, suggesting a structural shift in the long-term oil price is under way.
Members of OPEC would prefer that crude futures prices fell below the $40 level. However, the oil cartel is assessing the possibility of an upward shift in the long-term oil price and is considering raising its preferred price target range from $22 to $28. However, any agreement on a change in the price band is not expected to be confirmed today but to be made next year.
The price band issue was first discussed at the OPEC meeting in Algiers in February and has been taken more seriously in recent months, with a growing chorus of OPEC ministers calling for a higher target. OPEC's oil market analysts have been discussing the matter in the Austrian capital for the past week.
A senior OPEC delegate said there was a proposal to raise the preferred price range at today's meeting. However, Saudi Arabia's oil minister, Mr Ali Naimi, said yesterday that there was no need to change the price target.
OPEC members are expected to tell the five largest listed oil companies that the price assumptions used by the private sector in investment decisions are too low. The chief executives of the world's largest international oil companies, including ExxonMobil and BP, are gathering in Vienna for a two-day oil conference, which starts tomorrow and is hosted by OPEC.
OPEC encouragement to western oil companies on the long-term price for oil could stimulate further exploration and address the issue of the lack of spare global oil production capacity, which has been a significant factor in high oil prices.
"The market needs a beacon that helps oil companies to take investment decisions," said one senior OPEC delegate.
Despite global demand rising at its fastest pace in 28 years, OPEC members are worried about any significant increase in inventory levels among consuming countries. In 1998, the fall in oil prices to $10 triggered massive inventory increases which in turn kept the lid on demand for OPEC oil for a prolonged period.
This caution is not reflected in recent inventory reports. US commercial crude stockpiles have fallen for the past six weeks and are at their lowest level since mid-March. Crude inventories in the EU also dropped last month.
