ForexSpace.com - Oil prices dived to an eight-month low Thursday, after weak consumer spending data from the U.S. reignited concern over the health of the world’s largest economy. Benchmark crude lost 70 cents after the data emerged yesterday, finishing up at $82.62 a barrel and completing a dive to an eight-month low on commodities charts.

Crude-oil futures were also riding on rough seas in Asia Thursday, ahead of a meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna. As euro zone uncertainty rumbles on and Spanish bond yields hit the danger mark of 7 percent, OPEC members called into question the current oil production ceiling.

Early indications from the OPEC meeting have shown that the ceiling has been left in place to defend oil at $100 a barrel. But with Saudi Arabia still holding the strongest sway over the oil markets, they remain a force to be reckoned with as the debate rumbles on. Despite tumbling prices, Saudi Arabia have proposed raising the ceiling, amid calls from other members who insist that the current state of oversupply should surely necessitate curbed production.

“The wrong signal”

Analysts at Commerzbank have also commented about the perils of raising the ceiling: “Raising the oil output target would send out the wrong signal to the market”, they said in a note “as it would suggest that OPEC isn't willing to step down overproduction”.

Speaking today on Radio 4’s Today programme, independent energy consultant Cornelia Meyer (pictured) explained why Saudi Arabia might be keen to increase production. “Saudi Arabia looks at the state of the global economy and says ‘in order to dig ourselves out of the hole that is created  been left by the euro zone crisis, the slowdown in China, the slowdown in India, we need lower oil prices in order to help economies recover’. They are being good citizens in essence and saying ‘ok let’s increase’.”

Speaking ahead of the meeting, Meyer correctly predicted the direction of the conversation, adding her idea about a compromise that may eventually be reached. “What I think will happen is that they will probably decide not to increase the quota, to stay at the same quota and give in to me Iran and Venezuela and say let’s enforce quotas more”, she said.

IEA issues warning

The International Energy Agency (IEA) continue to warn against calling the market over-supplied, pointing out Iran’s oil exports have fallen by an estimated 40 percent since the beginning of the year, with western sanctions continuing to batter the nation’s oil industry. And a report issued by the agency has already been successful in its attempts to keep oil prices in the West low.

But the markets remain little changed by their pleas. "The IEA confirmed that there are stock builds and they don't want to say that the market is over-supplied, but it's not a game-changer in terms of prices and the market is still well-supplied," Olivier Jakob at Petromatrix in Zug said.

But with one of the world’s biggest consumers of oil and fossil fuels – the US - turning to shale gas production for increasing amounts of its energy supply, questions have been raised about the role of OPEC moving forward. But is quick to defend to organisation’s role: “It does matter what OPEC say as they control 42 percent of the output for oil, in ten years maybe 50 percent. Shale gas is different, shale gas is not oil. Oil is mainly used for transportation purposes, gas is used for power production and the chemical sector.

“Gas is regional unless you condense it and liquefy it - like natural gas - and ship it around the world, gas is a very regional commodity. Not a global commodity like oil.”

Overall, oil prices have dropped from a $128 peak for the year in March to $97,  commodities charts have shown, in part because the economic outlook has darkened but also because of increased Saudi output that in April set a 30-year high of 10.1 million barrels a day. Such a statistic confirms the importance of the oil-producing nation’s complicity in any plan to keep a production ceiling in place.

Sarah Cox, Market Writer. ForexSpace.com