OPEC’s lack of discipline
Since oil prices collapsed in summer 2008, the OPEC cartel has cut its output several times to counteract falling oil prices. Until recently, these production cuts have not really had a significant impact on oil prices. Due to the dire state of the global economy, oil consumption especially in the United States has slumped. Last week, the International Energy Agency forecasted the biggest drop in global oil demand since 1981 for this year. Crude oil inventories have risen to 61 days of forward cover. This has lowered expectations of speculators and analysts.
Iran now calls for another production cut at the OPEC meeting in Vienna on May 28th. However, experts within and without the cartel question the effectiveness of a new production cut. Obviously, several OPEC members are cheating on their quotas. There are hints that Iran and Angola exceed their respective target output decisively. It’s ridiculous that Iran is demanding a new cut of OPEC’s production while cheating the other members.
Algeria demands that the cartel enforces stricter discipline first. In fact, the global oil production would go down by approximately 700,000 barrels a day if all members sticked to their quotas. But few expect that to happen. Many OPEC countries have inflated their budgets in times of sky-rocketing oil prices. The bulk of the petro dollars were used to finance an arrogant foreing policy and generous domestic welfare programs and subsidized gasoline prices. Now they’re facing budget deficits. To compensate for the lower market value of crude oil, several members are producing above their target levels - leaving markets oversupplied in times of falling demand which puts pressure on oil prices on the expense of OPEC members which stick to their quotas.
more information on current trends in the oil sector: Crude Oil Price Chart 1998 - 2009: Facing the inevitable - oil prices are bound to risehttp://www.platts.com/Oil/News/8552060.xml
