But OPEC go beyond just making that prediction - they use it, and data that they have on consumption and oil supplies around the world to estimate how much OPEC should produce each month to balance supply against demand, so that the price will remain at a comfortable level for the OPEC economies. And based on those numbers they tailor production.

This month, for example, they note that global oil demand is anticipated to grow by 0.8 mbd this year (and by 1.04 mbd in 2014). They anticipate growth in production of around 1.0 mbd from the non-OPEC nations, with projected increases from Canada, the United States, Brazil, the Sudans and Kazakhstan contributing to an additional 1.1 mbd next year. From these numbers they can project that demand for OPEC oil will be slightly down this year, at 29.9 mbd down 0.4 mbd on last year, with next year seeing an additional fall of 0.3 mbd on average.

Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia (KSA), can keep the world supply in balance with demand and more critically for them keep the price up at a level that they are comfortable with. Note that in relation to the overall volumes of oil being traded, they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd) in order to sustain prices. The USA produces more, OPEC produces less – not much less because global demand is growing – and the price is sustained.

This has virtually nothing to do with the speculators on Wall Street and the corrections they might impose, this is all about supplying a needed volume to meet a demand and controlling that supply to ensure that the price is sustained.

There are a number of caveats to this simplified explanation, one being the short-term willingness and ability of some producers to keep to their targets. One of the imponderables is the production from Iraq. Although Iraq has been given a waiver through 2014 on the need to limit their production, the increasing violence has led to a drop in production, back below 3 mbd.

As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the countries themselves that they check from secondary sources, and provide both sets of numbers.

Note, for example, that Iran says that it is producing over 1 mbd more than other sources report, and Venezuela is around 400 kbd light. The balancing act is largely the charge of KSA, since it produces the largest amount and can adjust more readily to balance the need.

One of the other caveats is that the internal demand in these countries is rising, and that lowers the amount that can be exported. This will in time require that OPEC produce more, just to sustain the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot continue to produce ever-increasing amounts of oil.

Just exactly how much the country can produce is the subject of much debate, and has been at The Oil Drum since its inception. But if I can now gently admonish those who think it can keep increasing forever and that it has vast reserves that can flood the market at need. This fails to recognize that the major fields on which the country has relied are no longer capable of their historic production levels, and that over the time that TOD has been in existence, production has switched to the new fields that KSA had promised it would, back in time.

But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA struggled, usually in vain, to find a market for internationally. It is only now that it is building its own refineries to process the oil that it can find a global market for the product. Yet those refineries have only a limited capacity. If you can’t ship, refine and market your product in the form that the customer needs, it can’t be sold, regardless of how much, instantaneously, you can pump out of the ground. And so KSA is starting to look harder for other fields. They have increased the number of rigs employed to 170 by the end of the year (in 2005 they had about 20 oil and 10 gas rigs operating), going beyond the 160 estimated earlier, seeking both to raise production from existing fields, but also to find new ones. This is almost double the number that Euan reported at the end of last year. That this is being expedited is not good news! Because new fields will very likely be smaller, and more rapidly exhausted, and may not have the quality of the oil produced from Ghawar and the other old faithfuls.

Realistically, over a couple of years, I would suspect that the oil price line that I mentioned was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate to it.