Oil prices after an OPEC production cut

Marketplace Staff Oct 17, 2008
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Oil prices after an OPEC production cut

Marketplace Staff Oct 17, 2008
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TEXT OF INTERVIEW

Bill Radke: The price of oil has fallen hard lately. It was $147 a barrel this summer. Yesterday, it dipped below $70. So OPEC is holding an emergency meeting next week to talk about cutting production to boost that price.

Carola Hoyos covers the oil market for the Financial Times. She expects a production cut next week, but says it’s not a guarantee.

Carola Hoyos: Well, there are still some OPEC members who feel that they’d rather not add problems to an already faltering economy by trying to prop up oil prices. And there are two very different camps within OPEC — some countries, like Iran and Venezuela, that need a very high oil price, and that in fact can’t really pump much crude oil anyway. And Saudi Arabia, that’s much more friendly to the U.S., and therefore will argue, often argue differently. But the fact that they’ve called this emergency meeting in such a hurry does indicate that even Saudi Arabia may well now be on board to getting the ball moving.

Radke: What effect would that have on oil prices in this shakey world economy?

Hoyos: Now if I knew the answer to that question, I would be a billionaire with my own island. But I think unfortunately it probably won’t have as big of an effect as OPEC hopes it will. So far, OPEC is having to fight against some really bad news in the U.S. as people drive less. And also, most critically, the engine of growth, China, and in fact the Middle East itself, may be slowing. So they’ve got a lot to make up for, and I think in the end they’ll probably be disappointed with the immediate reaction of the market.

Radke: What do falling oil prices do to exploration?

Hoyos: Falling oil prices may sound like they’re a great idea in the short term, but in fact high oil prices have moved money into alternatives and have moved money into further exploration of places like the Arctic and offshore Brazil. So when the oil prices falls, generally these kind of amazing exploration adventures get put on hold, which is pretty dangerous because in the end, we could find ourselves in the same kind of situation of under-investment that created the $147 a barrel oil prices that happened in July.

Radke: Carola Hoyos covers the oil market for The Financial Times.

Hoyos: Thanks for having me.

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