As expected the 161st Opec conference which was held in Vienna on Thursday, ended without making substantial decisions regarding membercountries’ production collectively or individually.

The conference decided to rollover Opec’s production ceiling of 30 million barrels a day (mbd), which was agreed upon last December but never actually followed as Opec production kept rising to reach 31.87 mbd in May, according to IEA. The decision is perhaps a compromise between those who wanted to raise the ceiling and those who wanted to lower it.

The conference press release noted that the “heightened price volatility witnessed during the early part of the year 2012 was a reflection of geopolitical tensions and increased levels of speculation in the commodities markets, rather than solely a consequence of supply/demand fundamentals” but this does not exonerate Opec’s over-production.

In the last three months the price of the Opec basket of crude tumbled from $124.12 a barrel on March 18 to$95.22 on June 14, the day of the conference. Although there are many reasons for this behaviour such as the “downside risks facing the global economy, [the] heightened Euro-zone sovereign debts concerns” the conference agreed that “the presence of ample supply of crude in the market, have led to the marked and steady fall in oil prices over the preceding two months.” Given the above, “the Conference decided that Member Countries should adhere to the production ceiling of 30.0 mb/d” but this remains to be seen if further slide in the price of oil is forthcoming as many analysts are now expecting and whether Opec will come to do something more radical then.

Surely with the world economy as it is, Opecand other oil producers cannot depend on the demand from China and India to always salvage the situation. In its last Oil Market Report, Opec said that “China is already showing signs of being affected by the global slow-down” and “India experienced a significant slow-down in the first quarter of 2012”.

In addition to over-production from Opec, supplies from non-Opec are also increasing this year at the rate of at least 0.7 mbd and the increase in US production is compensating declines somewhere else. More importantly, the US production is believed to increase by one mbd in the next year and its momentum is encouraging other countries to look seriously at developing their shale oil resources.

With rising stocks in OECD countries, the call on Opec oil in the second half of 2012 may be one mbd higher than in the first half but overall the call on Opec oil in 2012 is 29.9 mbd as compared to 30.1 mbd in 2011, according to Opec, suggesting that a stronger effort is needed to trim Opec production to meet these targets and to defend at least the often cited price of $100 a barrel considered in many statements by Ali Al Nuaimi, the Saudi oil minister and president Chavez of Venezuela.

The initial reaction of the market to Opec announcement was cautiously positive as Brent August crude ended up 45 cents a barrel higher at $97.17 a barrel and US July crude settled at $83.91 a barrel, gaining $1.29 a barrel. The increases may have been also influenced by the appreciating Euro against the dollar after G20 officials said central banks are prepared for coordinated action to provide liquidity if needed after the Greek election on Sunday. But if election results come in favour of the parties opposed to the austerity measures, the likelihood of Greece leaving the Euro zone will increase, which may intensify economic and financial problems in other European Union countries such as Spain and Italy and contribute to further weakness in oil demand.

But longer term reports by traders and bankers are also worrying. Credit Suisse said that the worsening economic situation in Europe could bring Brent crude prices down to $50 a barrel this year though some observers thought this is unlikely because “at $50 dollars we can talk about broad global economic collapse” which they don’t think it is anywhere close. But the Credit Suisse analysis is also supported by Citigroup Global Markets “with predictions of a cyclical shift that could cause prices to slide in the long term to as low as $50 a barrel.” On the other hand, Barclay’s is expecting “stabilisation at recent lows below $100 for Brent crude but issuing a similar warning to those who might want to bet that oil prices are about to go back up.”

The last three months has proved that things can change quickly in the oil market and while doing nothing is easy, Opec may come to find it difficult to correct the situation if it keeps on doing nothing.