Skeptical of OPEC?

OPEC headquarters in Vienna

TEXT OF STORY

SCOTT JAGOW: Today, OPEC's first production cut in two years takes effect. The idea is to prop up the price of oil, but since the cut was announced, oil prices have mostly dropped. It seems traders are skeptical that OPEC will actually follow through with this. Jeff Tyler has more.


JEFF TYLER: The skepticism is not misplaced, says Michael Lynch with Strategic Energy & Economic Research.

He thinks foot dragging by some OPEC members will mean only half the cuts will be implemented by month's end.

MICHAEL LYNCH: "Especially when the price is close to 60 dollars, it's hard for the members to feel they should make strong sacrifice."

Economist Rakesh Shankar with Moody's Economy.com says OPEC hasn't been reliable when making threats in the past.

RAKESH SHANKAR:"Because it is a cartel, it is a little more inclined to cheat. They do have a little more discipline now than I think the market is giving them. They really have reached a new phase where they're a little better organized than they used to be."

But even if OPEC DOES cut the full 1.2 million barrels a day, slower consumer demand could undermine the impact.

Rather than boost the cost of oil, Shankar says the cuts could be considered a success even if they only stabilize prices or prevent a steep decline.

I'm Jeff Tyler for Marketplace.

About the author

Jeff Tyler is a reporter for Marketplace’s Los Angeles bureau, where he reports on issues related to immigration and Latin America.

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