Oil rises after no OPEC agreement on quotas

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After a very choppy trading session on Tuesday prices in the oil complex are mostly lower ahead of the outcome of today's OPEC meeting. The focus in the market is OPEC will most likely raise only the production quotas but not actually production. The OPEC 10 (excludes Iraq who still does not fall under the OPEC production quota) target has been 24.84 million barrels per day. Basis the May EIA STEO report as well as other estimates the OPEC 10 produced 26.63 million barrels per day in May. A pre-meeting (yesterday) OPEC committee recommended that OPEC increase the target by 1 million barrels per day which would not even completely legitimize the current OPEC production level. I would consider such an outcome as a neutral for oil as no additional oil is likely to flow into the market at this time. This still seems a possible outcome for OPEC as several headlines heading into the meeting today continue to indicate that OPEC members think that the oil market remains well supplied.

However, there could be a surprise coming from the meeting as Saudi Arabia is still saying they would rather see an increase in supply rather than OPEC's production targets. Saudi Arabia wants any increase to come on top of the current production level which would put more oil into the market and would be a bearish outcome. Normally the Saudi's win out in most all OPEC meetings and if the above is in fact the view of the Saudi delegation then new oil will be flowing into the market ...possibly not immediately but it will set the stage for more oil to flow in the second half when the IEA and other consumer agencies are projecting a need for additional barrels as the call on OPEC crude is expected to increase. For the moment it is not a slam dunk as to what the outcome will turn out to be so watch and listen carefully as this is setting up to definitely be a market mover today. The way oil is trading at the moment (down across the board) I would say the market is expecting an outcome that may be more in line with the aforementioned Saudi view (follow my Twitter comments as I will be commenting on the outcome throughout the day @dacenergy).

The EIA released their latest Short Term Energy Outlook (STEO) report yesterday afternoon. Not much to move the market in either direction as the EIA has not made any adjustments to their projections based on the poor economic data of late. In fact they did increase their projection for global oil consumption for 2011 by about 300,000 bpd versus the previous month's forecast due to higher oil related power generation in China, Japan and the Middle East. The report was basically neutral to biased to the bullish side in that consumption was not reduced. That said I think when the dust settles the EIA projection for oil consumption will turn out to be overstated. Following are the main oil related highlights from the report.

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