OPEC Finding It Difficult to Control Oil Prices

After the 9/11 terrorist attacks in the United States, demand for oil dropped causing the price of oil to bottom out. In late November, the price for a barrel of oil reached a two-year low of only $16.65 per barrel. Despite its best efforts, however, the Organization of Petroleum Exporting Countries has had little luck raising the price of oil — today a barrel of crude oil goes for $18.40.

OPEC called a special meeting of both OPEC and non-OPEC countries to try to hammer together an arrangement to reduce oil production to boost the price of oil. OPEC’s leaders think they might have enough countries on board to cut oil production, but whether those countries will follow through on their pledges (and for how long) remains to be seen.

In November, for example, OPEC nations agreed to cut oil production by 1.5 million barrels per day beginning in January 2002, but oil prices were barely affected. And that is on top of a 3.5 million barrels per day cut in production that OPEC nations had already agreed to earlier in the year.

At some point, the advantage of higher prices will be offset for some member countries by the marked decrease in production. Given the current soft demand for oil, it is highly doubtful that OPEC will be able to prop up oil prices.

Sources:

OPEC calls special oil price talks. The BBC, December 16, 2001.

Oil’s tumultuous week. The BBC, November 23, 2001.

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