❗Help close the gap: We still need to raise $40,000 by the end of March. Donate now

Skeptical of OPEC?

Jeff Tyler Nov 1, 2006
HTML EMBED:
COPY

Skeptical of OPEC?

Jeff Tyler Nov 1, 2006
HTML EMBED:
COPY

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.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.