OPEC inaction on $100 oil could sting later

By Matthew Robinson - Analysis

NEW YORK (Reuters) - OPEC's reluctance to open the spigots as oil nears $100 a barrel could backfire on the cartel as alternative energy sources and consumer conservation dig into demand.

Output curbs by the group, which controls more than a third of the world's oil, have contributed to a 90 percent rally in crude prices from last winter's lows and have helped spur investment in renewable fuels while denting demand growth.

The trend mirrors the effects of the oil boom of the 1970s, when Americans traded in gas-guzzlers for compact cars and took other conservation measures that cut into oil demand.

"Over time the danger for the group is accelerating a decline in primary consumption of oil products, as is now happening in the United States, which has been its largest growth market for the last 17 years," said Edward Morse, chief energy economist for Lehman Brothers.

"It accelerates both the market incentives for investments in alternatives and energy saving technologies as well as for political incentives in the OECD and emerging markets to foster the same ends."

OPEC agreed to roll back 500,000 barrels per day of a 1.7 million barrel per day output cut starting this month to sooth consumer fears high oil prices would damage economic growth.

But the group has dismissed calls from the United States and other consumer nations to further increase output, saying speculation and geopolitics are to blame for oil's surge - not a lack of supply.

Nonetheless, inventories of oil in the United States have slipped to about 8 percent below last year's level. And stockpiles in industrialized nations of the Organization for Economic Cooperation and Development have sunk below the five-year norm.

"In the third quarter, we had a decline of 850,000 bpd year-over-year (in supplies), and OPEC was down year-over-year 1.1 million bpd," said Jan Stuart, global oil economist for UBS Securities LLC. "Tell me again how this oil price rally has nothing to do with OPEC?"

DEMAND HIT

The oil crunch is already showing its mark on energy consumption and interest in renewables.

U.S. petroleum demand, under the weight of high prices and the wider economic problems tied to the sub-prime mortgage crisis, have fallen 0.4 percent below a year-ago, according to government data.

High prices also make more expensive energy sources more feasible, and clean energy stocks have roared higher as oil flies closer to $100.

Companies specializing in climate change strategies including renewable energy are up an average 18-27 percent since late August.

OPEC ministers, who will meet on December 5 in Abu Dhabi, insist buyers are not requesting more oil and say extra oil will not cool down prices.