OPEC has deferred a decision on reducing output quotas. Oil is in the low $50 range right now. This past summer it nearly hit $150 a barrel.
The United States, the largest economy in the world has entered a recession. Since the U.S. is such a large part of the world economy the rest of the world suffers as a result. The U.S. is a major consumer of other nations exports.
One of the best things to happen in the past four months has been the rapid decline in the price of gasoline. Oil is a major component in the price of gasoline. The reduction in gas prices has left more money in household budgets.
As oil falls, gasoline falls, consumers have more money to spend. As consumers resume spending the recession will slowly end and the economy will begin growing again.
Consumers need lower prices to restore their confidence in the economy and in their financial position. If OPEC were to cut output to increase prices in the short term, it is likely that the recession would linger for a longer period of time. At the same time many of the people calling for alternative energy sources will have the ears of more people. Investment in alternatives will likely increase thereby reducing demand for OPEC oil.
OPEC should hold output steady and allow prices to fall. This will get the world economy back up to speed faster. Output cuts only delay this recovery. Any production or quota reductions make OPEC look bad and gives those opposing them greater power, force and leverage. Taking action to increase prices is the wrong decision for OPEC to undertake.
What are your thoughts?
Sources for you to explore
Bloomberg: Energy Prices
Bloomberg: OPEC Defers Decision on Output Cut, Seeks $75 Oil