As Oil Prices Fall, OPEC Faces a Balancing Act, 09/04/08

The recent fall in oil prices has been a welcome respite for consumers but a thorn in the side of large oil corporations accustomed to rising oil prices and raking in profits. Oil has dropped nearly one third from its record high of $145.29 per barrel in July down to $107.89 per barrel by September. Despite the drop in prices, oil prices are still up 14%. Michael Wittner, the global head for oil research at Societe General states that, "They, (OPEC), are playing a balancing game. If prices are too high, they will kill the golden goose and hurt consumption. But at the same time, they see the weakening economy and are thinking the world doesn’t need so much oil right now.” Some members of OPEC such as Iran and Venezuela state that they do not want to see the price of oil dip below $100 per barrel, while King Abdullah, the leader of the world's most oil-rich country Saudi Arabia, said he believes $100 per barrel is too high. OPEC representatives will be meeting in Vienna to discuss pricing and the need to cut oil production and distribution in order to keep prices where they want them. OPEC countries are able to somewhat control the price of oil because the 13 countries represented are responsible for 40% of the world's oil output. They can manage prices by controlling production of oil. All thats left to do is wait and see what price OPEC members are willing to settle on. The balancing act is to find that right number where oil is still affordable enough not to curtail consumer purchase, but not so low as to sharply reduce revenues.

See the article here. -V