HOW LONG HIGH PRICES?

The $40 per barrel price of oil is a hot topic. But of even greater significance is the fact that for the first time since the early 1980s, oil prices have stayed above OPEC's target price zone for an extended period. CERA's current analysis indicates that that high price range will continue, possibly for the next two years. OPEC has shifted its strategy to keep commercial inventories low and maintain higher prices, tacitly lifting the lower end of the OPEC Basket target price band to $25-$26, says CERA President Joseph A. Stanislaw. This report defines this market shift, evaluating the fundamentals, the geopolitics, and the oil exporters' present situation that are combining to keep the oil price high. While currently hedge funds and traders, along with growing commodity funds, are exaggerating the physical and psychological fundamentals, the wild cards of China's rapid economic growth, production levels in Iraq and in Russia, OPEC's ability to manage production levels, and geopolitical tensions could also alter the market. Says Stanislaw, "OPEC will face a continuing challenge-to be alert and responsive to market changes," but for the near to medium term the basic realities set out in this Private Report will maintain upward pressure on oil prices.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.