At today’s OPEC meeting, the cartel’s oil ministers are expected to announce that they are happy with crude oil prices in the $70-$80 range and that OPEC will not change its production quantities. Even the recent dust-up with Iran over a disputed well has not changed the cartel’s calculus.

OPEC member nations pumped 34.21 million barrels per day in November, down nearly 2 million barrels per day from last year, according to the International Energy Agency. That’s an increase of about 60,000 barrels per day over October levels. Non-OPEC countries pumped 50.04 million barrels per day, compared with 49.32 million barrels per day a year ago.

On the demand side, the developed nations of the OECD consumed 44.29 million barrels per day in September, the last month for which figures are available. That’s down from consumption of 46.10 barrels per day in 2008 and 47.68 barrels per day in 2007.

Average monthly Chinese consumption rose from 6.92 million barrels per day in 2008 to 7.96 million barrels per day this September. Indian consumption rose from a monthly average in 2008 of 2.60 million barrels per day to 2.72 million barrels per day this year.

Total OPEC spare capacity rose from 3.97 million barrels per day in October 2009 to 4.08 million barrels per day in November.

One thing to bear in mind about these figures is that they do not include Iraq, which has recently awarded leases to some very large and promising fields. Royal Dutch Shell (RDSA) and Malaysia’s national oil company, Petronas, won a contract for the Majnoon field, which holds an estimated 12.8 billion barrels of crude. The Iraqis are pumping just 45,000 barrels per day from the field, but Shell expects to increase that number to 1.8 million barrels per day eventually.

Iraq is the wild card in future OPEC production, and ultimately, future (two or more years out) crude prices. Iraq’s proved reserves total 115 billion barrels and there are an additional 100 billion potential barrels. Production depends to a large extent on the level of security that the Iraqis can provide going forward. It is not impossible that Iraq alone could produce 10 million barrels per day once its fields are developed.

Earlier this year Iraqi officials projected a production goal of 6 million barrels per day by 2013, well above the 2.5 million barrels per day the country produces now. If Iraq can reach that number, OPEC’s calculus might need to be revised.

How will OPEC respond to increased Iraqi production? Will Shell and the other contractors be allowed to produce as much as they can or will the Iraqis throttle back on production to meet OPEC requirements? And, most important, will international oil companies be safe from terrorist threats or will Iraq turn into another Nigeria?

OPEC is currently satisfied with the price of crude, believing that the price does not reduce consumption while still providing member nations with sufficient wealth. But there is little recent evidence that the cartel really controls pricing by manipulating supply. It is far more likely that demand growth from India and China will have a greater impact on prices going forward. Non-OPEC producers, particularly Russia, will do everything in their power to fill in any production shortfalls left by OPEC. That balance may be enough for now, but looking ahead, it’s Iraq that will really matter.

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