New OPEC output ceiling could unravel oil investments

Crude oil futures hovered in mixed territory on the Asian commodity index today, as traders scrambled to action after reports reached the sector that OPEC ministers agreed to raise their production ceiling for the first half of the year 2012. Though no official new quota rules have been established so far, the news comes as a potentially damaging obstacle for global investment strategies, as higher OPEC output could significantly cripple demand.

West Texas Intermediate crude oil prices for delivery in January rose an arbitrary 4 cents to $94.99 per barrel in electronic trading on the New York Mercantile Exchange, though that is likely not an accurate indicator of the path the American benchmark will take over the course of the day.

Brent crude oil prices for January settlement fell 13 cents to $104.89 per barrel on the London-based ICE Futures Exchange.

OPEC’s officials issued an official announcement today that its collective production will stand at 30 million barrels of crude oil per day. The announcement is an acknowledgement that the prolific cartel has been chronically overproducing the quotas that were set in place by its people in the first place. As of November, the entire bloc’s output (minus Iraq, which is unaccountable for quotas at the moment) sits an alarming 11% over the official limit of 24.8 million barrels per day. The twelve states representing OPEC produce more than a third of the world’s total crude oil supply. The cartel meets in Vienna on a semi-regular basis in order to discuss output levels and the geo-political implications affecting it.

OPEC’s decision may prove a devastating blow to the already fragile state of crude oil futures and oil investment. The new output levels will bring the group’s production rates to their highest peaks in more than three years. That coupled with the fact that the individual states have not been monitored for reduced production adds tremendous pressure to the energy commodity sector.

By Chris Termeer