OPEC's price hike may drop oil demand

Libyan Oil Minister and chairman of Libya's National Oil Corporation Shukri Ghanem talks to reporters as he arrives in Vienna for the Organization of Petroleum Exporting Countries meeting


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.

About the author

Sam Eaton is an independent radio and television journalist. His reporting on complex environmental issues from climate change to population growth has taken him all over the United States and the world.
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Let them raise prices, they'll be just digging a deeper hole for themselves. OPEC's existence is fulfilling its destiny as industrialized nations are beginning understand that it is fundamental not to depend on OPEC countries for energy. In the US both democrats and republicans apparently understand this, even if they have a different approach to it. The investments planed for the modernization of the electrical grid are an example of somebody, somewhere understanding that cars might be electrically (and not fossil fuel) powered regardless of the price of oil at some point. Some things, like airplanes will probably be fossil fuel powered for a long time though.

Despite the political highhandedness of Chavez, the arrogance of the rulers of Saudi Arabia and the dodginess of Iran's government(s), it's hard to blame the OPEC members for wanting to get some kind of grip on the price of oil. Oil's the one big stick they can wave around and, by that, get the rest of the world's attention. And get it they do, boy!

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