Iran Official Says There is "Too Much Oil" on Market

For Americans, and others who consume oil in its various forms to fuel their businesses and their lives, the statement may seem like mere folly, but Iran Oil Minister Gholam Hossein Nozari has recently claimed that there is "too much oil" on the market and that OPEC should cut production to correct the imbalance. OPEC met over the weekend and it was still unclear whether the oil cartel wished to lower output quotas or merely stop overproduction by several nations who have not abided by previous quotas. Last September, the cartel decided to cut production by 4.2 million barrels per day, but indications are that the 10 OPEC countries with production limits are still overproducing by an aggregate of about 800,000 barrels per day.

Certainly, OPEC ministers wish to bolster prices of their product, but there are many indications that they are very cognizant of the global economic scenario and don’t want to do anything rash or that would be seen as undermining a economic recovery. Said London-based analyst John Hall, "They don’t want to be seen as fueling recession further, which is what they’re going to be seen as doing if they reduce production more."

While various hard-liners in OPEC do wish to cut production further, there are warning that driving up prices will result in further erosion of demand and could backfire both for OPEC and the global economy. The International Energy Agency noted that world demand would drop for the second consecutive year if OPEC decides to make further cuts, the first time that would have happened since 1982-1983. Said the agency, "The eventual resumption of global demand growth will largely depend upon much stronger economic performance than is currently the case."