The Dynamics Of OPEC Increase Get More Complex

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OPEC ministers are indicating that when they meet later this month, they may cut production by two million barrels a day. That would be on top of a similar cut in September. Neither the action three months ago or threat of tighter supply has kept crude from slipping toward $40.

The plans of the cartel are complicated by the news that the worldwide demand for oil will drop in 2008 for the first time since 1983. Under the circumstances, if OPEC wants to push prices back toward $60 or $70, production will have to be curtailed by three or four million barrels. If that does not work, there may be additional adjustments next year.

According to Reuters, World oil demand is projected to fall by 50,000 barrels per day in 2008 and 450,000 barrels per day next year says a U.S. Energy Information Administration report.

With the economies in Venezuela and Iran running into deep trouble, OPEC can either make one of the sharpest cuts in it history or let some of its members go to hell.

Douglas A. McIntyre