Thursday, December 18, 2008
Cheap oilOPEC is getting worried. Many OPEC members rely on higher oil prices to subsidize their economies. When the price of oil was high, consumers started to cut back on the use of gas, driving less, using other modes of transportation. This loss of revenue is causing problems back home, so one solution is to try to elevate the price of gas once again.
According to a recent Post article, OPEC Plans Drastic Cut In Oil Production, "Facing its biggest test in a decade, the Organization of the Petroleum Exporting Countries is planning to make a major cut in oil output at a meeting in Oran, Algeria, tomorrow in an effort to stop the slide in oil prices, which have dropped by two-thirds since July."
"Confronted by sputtering world oil demand, the cartel is expected to make production cuts of about 2 million barrels a day to reduce the size of world inventories and to boost prices back up to the $75-a-barrel level that Saudi King Abdullah has called reasonable. It will be the group's fourth meeting in four months as it tries to adjust to the weakening world economy."
Not only is OPEC decreasing production, because of the low cost of oil, many oil firms are reducing their exploration and research: "'We are already putting down the seeds for a new oil spike,' Gheit said, noting that the drop in exploration and development spending would mean lower production capacity in the years to come."
The sooner we wean ourselves from our oil addiction, the better off we will all be.