In Article 2 in the book I discuss the role of OPEC in the spring of 2008 when oil prices were well over $110/barrel. In the last part of my analysis of the article from the Financial Times I conclude with the following:
"Against this background the economic power of OPEC looked as strong as ever and consumers would seemingly have to get used to permanently high petrol prices".
Sometimes it is just best to hold your hands up and admit you were wrong. And this is a perfect example. At the time of writing that part of the book it was widely expected that oil prices would remain high driven by limited supply and high demand. A few months later that view crumbled in the face of rising supply and in particular falling demand. The slowdown in World economic activity led to a collapse in the demand for crude oil. As a result prices have fallen back to less than $50/barrel.
Last week we saw the response of OPEC who are:
"the most important example of a cartel operating in practice. This is where a group of suppliers come together to create a formal agreement to control the volume delivered into the market. The members of OPEC have been meeting in Vienna since the mid 1960s to set the level of their output and to influence the level of world oil prices. Each OPEC member is allocated a specific quota that they are allowed to produce. Their members include Algeria, Indonesia, Iran, Iraq, Saudi Arabia and Venezuela".
The 13-nation OPEC plan to cut oil output by some 2m barrels a day. The aim is to reduce the available supply to match the sharply reduced demand. As a result OPEC hopes that this move will see oil prices return to at least $75/barrel. It must be careful that this action does not undermine economic confidence and so force an even deeper slowdown. This will be a tough balancing act for an organisation that owes its primary responsibility to the oil-producing members. I would like to end with a clear forecast for the prospects for oil prices in 2009. However, after my last effort I will keep quiet for now!
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2 comments:
Hello Kevin,
According to this article, OPEC wants to cut the output supply which will increaser the price of oil. Why OPEC want to sell oil on high price not on low price?
If OPEC sell cheaper oil, it will encourage companies and couturiers to have more consumption and help to develop new projects which are oil based which will help in economic progress of countries . This will also help oil production companies to produce and sell more oil and maximize their profits because of more demand of oil. Where as high prices in oil will not be so helpful for the oil production companies and for oil consumption industry, in the long run.
So, why OPEC want to increase the oil price?
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