On Sunday, OPEC President Chakib Khalil asked all members to cut oil production in a bid to control oil prices. But why are oil prices falling so quickly, and what are OPEC members doing about it?
November 4, 2008 11:07 by kippreport
During the Abu Dhabi International Petroleum Exhibition and Conference, BP PLC chief executive Tony Hayward voiced a growing concern: “Prices are falling, but they’re falling for the wrong reasons: because of reduced demand and a consequence of reduced economic activity, not because we have increased supply or increased energy efficiency.”
In short, here’s what’s going on: global economies have been forced to cut back their oil consumption due to the credit crunch and a resurgent US dollar. Not surprisingly, then, the price of oil has dropped more than half, from $147 a barrel to almost $63 since the summer.
Which is why a panicked Chakib Khalil, president of OPEC, has asked all members to cut down on oil production. He hopes the cuts will keep the price of oil between $70-$90 a barrel. Many OPEC members rely on oil revenues to fund their development plans and are keen on keeping oil prices above $70 a barrel.
But regulating the price of oil, however is in the best interest of both OPEC members and consuming nations. Gordon Brown, the British prime minister, spoke at the oil conference in Abu Dhabi about the importance of stabilizing the price of oil: “The volatility in oil markets is damaging,” he said. “A new framework for energy based on responsibility and our mutual interdependence is needed.”
So far, Kuwait, the UAE and Nigeria have confirmed they will cut down oil production; but Saudi Arabia, the world’s largest oil producer, has not. Why? We don’t know.
In the meantime, the oil industry is looking for ways to ensure the price of their precious black gold doesn’t sink too low. Otherwise, OPEC members may be forced to cut down on their infrastructural projects at home.