Whether or not OPEC has enough crude on the market is under spotlight. Markets are volatile, with prices hovering around $70 a barrel mark. Conflicting signals — from all around — are making the markets still more erratic.

On one hand the US crude inventories were reported at their highest in more than nine-years last week, and on the other, between the first quarter and second quarter of 2007, crude prices had strengthened by almost $10 a barrel. Difficult indeed to establish any relationship between these two conflicting sides of the same equation.

Quarter-on-quarter, this is the biggest price increase this decade, the London based Centre for Global Energy Studies (CGES) said in its Monthly Oil Report (MOR) released on June 25. “This dramatic rise in oil prices would seem to suggest that the world is short of oil and ought to be providing a clear signal to OPEC that its members need to put more oil into the market. However, the organization sees evidence elsewhere to support its argument that putting more crude into the market would not help to ease the situation,” the MOR felt.

The CGES does not seem to be concurring with the OPEC understanding of the market, asserting that further price increases over the coming months are almost inevitable unless more crude is made available.

The Paris-based International Energy Agency (IEA) also points to the same scenario. The IEA has been arguing for some time now that OPEC’s rigidity (in not increasing its crude output) could bleed crude markets.

The IEA has also been underlining the unexpectedly strong demand in big emerging economies, a sharp supply fall in May and another crimping of supply this month because of routine maintenance on infrastructure outside the OPEC, as the likely sources for continued bull run._

The agency in fact raised its forecast for daily demand growth to 1.7 million barrels a day or 420,000 barrels more than it estimated a month ago._”It seems difficult to escape the conclusion that the oil market will be tight in the second half,” the agency said in its monthly oil market report, lifting its forecast for global oil demand to 86.1 million barrels a day.

European Energy Commissioner Andris Piebalgs also called on the OPEC during a meeting in Vienna to steer away from output restrictions.

“We are saying: Don’t make any restriction and open your production according to how each company and each country feels the market should be supplied.”

The OPEC is however, looking at the market through a significantly different prism, arguing that any move to raise oil output would merely add to already ample stocks in consumer nations. “As we see it now there is no shortage,” OPEC Secretary-General Abdullah Al-Badri emphasized. “There is a lot of oil on the market, the stocks are high.”

Most OPEC members also strongly feel and underline they are more than meeting the global crude demand and reining in its production has not drained stocks at major customers.

Iran’s OPEC governor, Hossain Kazempour Ardebili, emphasized in a press statement that as OPEC forecast, the global oil demand stands currently at 85.61 million barrels per day. Of this, the total call on OPEC oil was estimated to be 30.56 million bpd and that the OPEC was meeting its obligations in this direction.

The OPEC is basing its projection on the highest US crude oil inventory levels for almost a decade and the relatively low rates of US refinery utilization, despite high refining margins. The organization also cites geopolitical tensions in the Middle East and Nigeria, much beyond its control, as sources of further upward pressure on oil prices.

The OPEC also expects global oil demand to increase by 1.3 million bpd (1.5 percent) in 2007, with the strongest growth yet to come in the second half of the year, when the pace of global oil consumption growth is forecast to pick up dramatically, averaging more than 2 percent in the final quarter of the year. However one needs to underline here that OPEC remains optimistic about non-OPEC oil production this year and is taking a cautious approach about the call on its own output. OPEC sees non-OPEC output increasing by 1.14 million bpd in 2007.

The net result is that OPEC’s estimate of average non-OPEC production in 2007 is 750,000 bpd higher than the CGES’ estimate for the same period.

The IEA, on the other hand, remains concerned that crude markets will tighten significantly in the second half of 2007 as global demand would rebound from its second quarter low point. Unless more oil is forthcoming from OPEC, markets would tighten further.

Like the OPEC, the IEA also sees the pace of global oil demand growth increasing dramatically in the second half of 2007. According to the IEA, global oil demand growth will soar from 0.5 percent in the first quarter and 1.7 percent in the second quarter to 2.6 percent in third quarter and 3.0 percent in fourth quarter, driven by accelerating oil demand growth in the OECD, FSU and China, the latest issue of the agency’s Oil Market Report said.

However, like CGES, the IEA is also less optimistic than the OPEC about non-OPEC output growth. Despite conceding a year-on-year increase of 860,000 bpd in non-OPEC production, the average production level is still 360,000 bpd below OPEC’s forecast. Hence the two sides differ significantly on the possible market scenario a few months down the road.

The gap in positions stays — and the debate rages — making it still more difficult for the markets to correctly define future market movements. But this is how the crude markets work and one cannot see the pattern changing in foreseeable future.