OPEC’s Woes -- New York Times
Oil producers are understandably desperate. In the space of only three months, crude oil prices have fallen by more than half — slashing their export earnings and cutting into their oil-dependent budgets.
Still, OPEC must tread extremely carefully as it attempts to put a floor under oil prices. The sharp decline in the price of energy has been the only sliver of good news amid a tide of financial woe enveloping the world. It reduces inflationary pressure and gives more space for central banks to cut interest rates.
If production cuts were to ignite another run-up in oil prices, they could send the world economy into an even deeper slump from which it could take a very long time to recover.
OPEC’s decision at its emergency meeting on Friday to cut output by 1.5 million barrels a day — about 5 percent of production — did not immediately stop oil’s slide. After the announcement, Brent crude declined to about $60, way below the $145 or so that it fetched last July.
The reason is that demand is collapsing. Analysts expect global demand for crude to fall this year for the first time in a quarter-century, as consumption slows in the high-growth economies of Asia. In the United States, the world’s biggest consumer of energy, it has already fallen to a five-year low.
The decline is proving devastating to oil producers that until recently were swimming in petrodollars. Iran, which has aggressively used oil revenue to pay for expensive social programs, wants prices above $90. Venezuela, which is also using the money to finance allied governments in neighboring countries, is said to be desperate for prices to go back above $100.
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My Comment: I do not feel sorry for OPEC.