OPEC Cuts Production of Oil to Provide "Floor" for Prices

The Organization of Petroleum Exporting Countries (OPEC) held an emergency meeting in Vienna, Austria today in a reaction to falling oil prices around the world. The decision coming out of the meeting may temper the recent enthusiasm of the world’s oil consumers, as the cartel decided to cut production by 1.5 million barrels in a move to stave off the "dramatic collapse" of oil prices. Despite the announcement of this move, crude oil prices still dropped roughly 7% as the world’s investors continue to react to a pending world recession and the ongoing financial crisis. The lesson, it would seem, is that even the extreme monopoly power created and carefully maintained by OPEC may be rendered useless in a world economy gone wild. Investors, it would seem, think that everything is now worth less than it was just a few months ago.

Of the OPEC members, Iran and Venezuela sought a cut of 2 million barrels per day, but other members, perhaps not wishing to bite the hand that feeds them, voiced concerns that such a drastic measure would further hurt the world economy and erode demand for their black gold even further. While the actions take today were tempered, OPEC has made it clear that they will meet again, post haste, if the world’s oil prices do not stop steadily declining and, in fact, today’s meeting was pushed up from a scheduled date of November 18. One analyst notes that the latest OPEC decision will likely increase prices, but that the expectation is that pricing will settle in the $80-$90 per barrel range. Current prices are just over $63 per barrel.

Notes an OPEC spokesperson: "Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude. This slowdown in demand is serving to exacerbate the situation in a market which has oversupplied with crude for some time." One wonders if the OPEC spin machine is aware of the precipitous fall in the market for just about everything of late, or of the almost surreal nature of the statement that markets have been "oversupplied" with oil. Seeking to extend their monopoly power even further, OPEC has also reportedly asked Russia and other countries that are not OPEC members to fall in line with their actions, and to assist in propping up prices.

The situation would actually be somewhat laughable were it not so grave elsewhere in the world economy, as the ministers of oil producing countries scramble to hold tightly to the controls they use to maintain pricing and profits. Without a touch of irony, the OPEC statement went on to note that "OPEC cannot be expected to bear alone the burden of restoring equilibrium [to the world economy]." So, while stocks and home values plunge in the U.S. and throughout the world, it appears that oil, at least, will continue to be priced as though the world economies are chugging along…at least if OPEC have their way.