Once again the Organization of Petroleum Exporting Countries has a big problem on its hands — despite all its efforts, there is still too much oil. Excess oil supply has the price for barrel stuck well below the $22-28 price level that OPEC tries to maintain.
OPEC has held off on a production cut fearing that it would look bad in the wake of the 9/11 terrorist attacks in the United States, but it is now ready to cut oil production by 1.5 million barrels per day.
According to the BBC, OPEC has managed to persuade non-OPEC nations Russia, Mexico and Norway to go along with the cut, which is crucial since those countries could undermine the cut by increasing oil production as OPEC nations reduce theirs. Meanwhile several OPEC members, including Iran, are threatening to increase their production if any agreement to cut production actually occurs (cartelizing an industry is extremely difficult because of just these sort of problems with defectors).
After Russian prime minister Mikhail Kaysyanov announced that Russia would voluntarily cut its crude oil production, the price of crude oil managed to hit a high of $21/barrel after hitting a two year low of $18.85/barrel.
This would be the third cut in oil production pushed through by OPEC this year, and put OPEC oil production at its lowest level since 1990.
Source:
Opec to cut oil output this week. The BBC, November 11, 2001.