OPEC once again proved unable to stabilize oil prices. The Organization of Petroleum Exporting Countries could not prevent oil prices from skyrocketing in the first half of 2008, nor can it stop them from falling sharply to a level where almost all oil exporters struggle to balance off their budgets.
Even after OPEC announced an additional gigantic production cut last week, oil prices even fell below $35 per barrel to a four-year-low. Though oil prices recovered a bit and returned to slightly above 40 dollars due to OPEC’s desperate confirmation of the intention to boost oil prices at all costs as well as the dollar’s decline against the euro, oil is far from where OPEC wants it to be. Saudi Arabia considers $75 a barrel a “fair price”. It’d be interesting to know whether Saudi Arabia also thinks that the $147 we had in summer were unfair!
Officially, OPEC’s members are willing to scale back their output decisively. Russia, which is not a member, also announced plans to slash its output in solidarity. But it remains to be seen whether their oil production is reduced by 2.2 million barrels a day. As it’s always been the case, some OPEC members are cheating on their quotas. That’s why the real oil output is much higher than the official quota set by OPEC. After all, a production cut means at first less money flowing in from abroad. Therefore, some countries could feel the need to compensate for the income loss by exporting more.
Of course, the production cut should help bring prices back again to at least $80 a barrel if everything works out for OPEC, but stockpiles e.g at the “Pipeline Crossroads of the World” in Cushing, Oklahoma are at a 19-month high. Cushing holds about 10% of U.S. crude stockpiles which means it has a decisive impact on oil prices.