OPEC cuts production as prices tumble
OPEC President Chakib Khelil of Algeria talks to reporters as he arrives for OPEC's emergency meeting in Vienna on Oct. 22, 2008.
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Kai Ryssdal: On a day like today, with the world coming to terms with a severe economic slump, you'd expect oil prices to drop. The theory is there'd be much less demand for crude as growth slows and indeed, oil prices did fall today, $3.50 down to $64.14 a barrel. But today's cheaper oil was counter-intuitive in at least one respect. Because OPEC ministers announced a hefty cut in production this morning -- a million and a half barrels a day. And they promised to cut output even more if prices keep on dropping. From Washington, Marketplace's John Dimsdale reports now on why OPEC's move didn't matter much.
John Dimsdale: OPEC will cut a million and a half barrels of output a day by December. But OPEC already exceeds its current quotas by 300,000 barrels a day and Tom Wallin with the Energy Intelligence Group says OPEC has a credibility problem.
Tom Wallin: They can come out with a pronouncement of a production cut but the big question is are they going to deliver on it. Because they have a track record of not living up to these things a hundred percent.
OPEC resisted calls from its own members to cut even more on fears that could really trim demand. Oil is now 60 percent below their highs and that's helping U.S. consumers cope with tight credit and lower home values. But when the economy comes back, Stephen Leeb, the author of "The Oil Factor" says the price of oil will be explosive.
Stephen Leeb: Then, it's a boomerang. It's not just that it will go up. It will go up probably about as fast as it went down and very likely exceed previous highs.
That's because falling oil prices now are forcing energy companies to curtail exploration for new sources. And when demand picks back up, supply will be scarce. But in the meantime, the Department of Transportation says Americans drove 78 billion miles less in the first ten months of the year compared to last.
In Washington, I'm John Dimsdale for Marketplace.