What prompted OPEC’s production cut?

Marketplace Staff Sep 10, 2008
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What prompted OPEC’s production cut?

Marketplace Staff Sep 10, 2008
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Scott Jagow: OPEC has decided it won’t let the price of oil fall too far. Today, the cartel cut production by half a million barrels a day. Joining us now is Javier Blas. He covers energy for the Financial Times. Javier, why did OPEC do this?


Javier Blas: Well, I think that OPEC was concerned that oil prices could fall well below $100, and they decided the best option for them was to send a clear message to the market that they were ready to defend high oil prices. So, obviously, OPEC is marking a line on the market and $100 is now that line.

Jagow: Now, Javier, I remember that not too long ago when OPEC was worried that the price of oil might go above $80 a barrel and kill demand. Now, we’re still above $100, what has changed?

Blas: What has changed is that OPEC still sees a very, very strong demand. In China, India, Brazil, the Middle East and Russia demand is growing very, very fast. And what OPEC has realized is that we have seen very strong demand with very high oil prices.

Jagow: And you said the barrier here is $100. That’s what you think OPEC is looking at in terms of propping up the price of oil?

Blas For some OPEC members, in particular Venezuela, Iran, probably Nigeria, $100 now is the minimum price. I would say that Saudi Arabia and other countries will not see any problems if prices drop below $100, but to stay somewhere between $80 to $90. But wherever is the line, it is very clear that OPEC today is defending a much higher price that just a year ago.

Jagow: All right, Javier Blas from the Financial Times, thank you.

Blas: Thank you.

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