OPEC Stands Pat; Gas Prices to Remain High. Or Higher.

Donal Fagan
by Donal Fagan

In inflation-adjusted terms, oil is at its historic peak. The 1980's price of $39.50 a barrel translates to $103.76 in today's money. Many analysts attribute these high oil prices to speculation and increasing demand. And yet the Organization of Petroleum Exporting Countries (OPEC) have long fine-tuned their production output to micromanage world markets. So says the International Herald Tribune. The Trib reports that OPEC may forego their usual springtime production cut to spare the reeling US economy even higher oil prices. Deutsche Bank's chief energy economist says it's one of those PR-type deals. "They don't want to be blamed for a recession," claims Adam Sieminski. "That would be bad public relations." U.S. Energy Secretary Samuel Bodman is down with that. "It is important that the members of OPEC for their own sake carefully look at supply and demand." OPEC's choice, however, is between cutting production and maintaining the current output. For whatever geo-political/economic reason, increasing production seems to be off the table. Once again, it may be time for someone in Washington to pick-up the bat phone and call our good friends at the Saudi embassy…

UPDATE: Reuters reports that OPEC has decided to keep oil output steady. That said, Saudi Arabian Oil Minister Ali al-Naimi claims they’ve been pumping 9.2m barrels per day (bpd), already roughly 300k bpd above their OPEC target.

Donal Fagan
Donal Fagan

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  • Bancho Bancho on Mar 06, 2008

    The point is, there is no embargo, they're just not *increasing* production. It's their country. It's their oil. It's their decision. There are other nations who produce oil as well. The thing is, there is an ever inreasing demand for their oil so our needs here in the US are *not* the sole factor dictating how *they* produce their product. Their oil is a finite resource (unless you believe in magic) so it's in their interest to make that resource last as long as possible. The whole premise of this thread was that they wouldn't *increase* production to help alleviate our high fuel prices. If anything the great free ride we've had as fuel prices go is gone forever. The whole comparison of this with MS is a different situation altogether.

  • Landcrusher Landcrusher on Mar 06, 2008

    Bancho, Self interest is not a defense for cartel. A cartel is market manipulation. Why is it wrong for Exxon, Shell, and Chevron to collude on supply? Either it is wrong or it is not. If it is wrong for Exxon, Shell, and Chevron to collude on supply, then it should also be wrong for PDVSA and Aramco to do so. The same people controlling PDVSA and Aramco are the ones behind OPEC's decision to control output. It doesn't matter what OPEC decides. The second they meet, they are violating the laws of free countries. Hiding behind "sovereignty" will not stand. If it's that easy, then let's get some little country to back us, and we will go take over some other market and manipulate it to our mutual benefit. Certainly one of the African dictators would relish the ability to stick it to the man while making some money from us.

  • Bancho Bancho on Mar 06, 2008

    I guess we can agree to disagree. Personally, I think the best long term strategy to "sticking it to them" would be to use less oil overall. There's only so much oil on the planet and there is an ever increasing number of people who want it.

  • Hal Hal on Mar 06, 2008

    @windswords: the most the Bush administration can claim is that the US has grown at trend - that's during a period of record low interest rates. Meanwhile government spending is out of control, So yeah cutting taxes and increasing government spending results in growth but eventually the bill arrives in higher prices, higher interest rates and a ballooning national debt. That's the definition of "economic mismanagement" to any fiscal conservative.