OPEC’s price hike may drop oil demand
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Kai Ryssdal: Crude oil dropped today. Down less than a buck to $46.25 a barrel. Told you that as a way to get to this, that the trade deficit has fallen to its lowest level in more than six years. Part of that, of course, is the recession. We’re just not buying like we used to from overseas or any place. But the oil that we are importing is relatively cheaper than it used to be. That, combined with shrinking U.S. demand for crude, is keeping consumers happy at the pump. But for the OPEC oil ministers meeting this weekend in Vienna, it is a major headache as Marketplace’s Sam Eaton reports.
Sam Eaton: If it was just about supply and demand, OPEC’s decision next Sunday would be easy — cut output as a way to shore up flagging oil prices. But throw in the sinking global economy and things get complicated. Tom Kloza is an analyst with the Oil Price Information Service.
Tom Kloza: If the price goes too high this severe recession could deepen and drive consumption lower.
Causing oil prices to drop even more. He says that’s the last thing OPEC countries want. But the fact that today’s oil prices are down about a $100 a barrel from last summer’s peak has OPEC leaders in a pickle.
Kloza: The problem is that their budgets and their capital expenses and what they need for their social agendas, you know, requires much, much higher prices than what their production costs are and much higher prices than we’re seeing now.
Global oil demand is expected to fall again this year according to the International Energy Agency. Analyst say if OPEC curbs supplies to raise prices it could backfire. Prices will eventually rise again on their own. But oil expert Daniel Yergin says how soon doesn’t depend on OPEC; it depends on the G20 meeting next month in London.
Daniel Yergin: The decisions that the major economies make about stimulating their economies; the decisions they make about furthering economic recovery, that’s what will really determine the future price of oil.
And as for today’s oil prices, Yergin says OPEC should be happy they’re not any lower than they already are.
I’m Sam Eaton for Marketplace.
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