OPEC inaction sets oil up for further spikes

By Santosh Menon and Jane Merriman - Analysis

LONDON (Reuters) - OPEC's decision not to pump more oil when prices are at record peaks almost daily could leave the oil market vulnerable to further price spikes.

U.S. oil hit a new record of $105.97 a barrel on Thursday, a day after members of the Organization of the Petroleum Exporting Countries (OPEC) left their output policy unchanged, ignoring demands from consumers led by the United States for more oil.

OPEC's decision, although widely anticipated, came on a day U.S government data showed crude stocks unexpectedly fell last week in the world's biggest oil consumer, after rising for several weeks in a row.

"Prices rallied in the last few weeks while U.S. inventories built. So what happens to prices when broader crude oil fundamentals actually tighten up a bit? We think there is further upside price risk from that angle," said UBS economist Jan Stuart.

Investment bank Barclays Capital last month sharply raised its forecast for U.S. crude oil in 2015 to $137 a barrel from $93, and analysts say more such upgrades could be on their way.

"We are going to see prices remain above $100 for a while," said Michael Wittner, analyst at Societe Generale.

The price of oil has averaged more than $96 so far this year compared with $72.30 last year, despite the threat of recession in top consumer the United States that could hurt the world economy and demand for oil.

Washington had called for a modest OPEC output increase of 300,000 barrels per day to 500,000 bpd, which it said could calm prices and help to limit any economic damage.