The world is currently struggling to avoid a deep and long recession. The major economies have cut interest rates and injected trillions of dollars to...
The world is currently struggling to avoid a deep and long recession. The major economies have cut interest rates and injected trillions of dollars to increase the flow of money into their respective economies in order to halt the economic slide and drive growth. This type of concerted global effort takes sacrifice on the part of countries and their citizens. The U.S. will inject another $900 billion of economic stimulus along with about $350 billion for the financial sector. The country's debt will rise from the current $1.2 trillion and could easily double before all is done. What I'm getting at is that it takes sacrifice at a time when the idea of a depression is not farfetched.
Now,
as I have commented in the past, the Organization of Petroleum Exporting Countries (OPEC), the cartel of 13 oil-producing countries that provides about 40% of the world's oil, has been making it clear that it is not happy with the fact that oil is stuck in the $40.00 range. It appears that the oil cartel doesn't seem to understand that the world is in a severe economic bind and hence there is a resulting lower demand for oil. The decline in oil prices is simply a function of basic supply and demand. When demand declines, prices shift down. This is the case with oil. And to try to get prices back up, OPEC has been cutting supply and has already cut or will cut up to a total of about 4.2 million barrels a day from its September levels. So far this has not worked as OPEC wanted and prices have continued to trade around $40.00, with occasional breaks below.
What really gets me is that, on Monday, OPEC came out and voiced it displeasure with oil prices once again. The cartel said that its member group will need to postpone 35 of 150 new oil and gas projects due to the lower prices. OPEC has made it clear that it wants oil at the $70.00-$80.00-a-barrel range. The announcement did nothing to the price of oil in trading, as demand is the key.
But the problem with this is that it could work against OPEC. Once the global economies work things out and growth begins again, the demand for oil will follow. If the capital projects are postponed, it could cause OPEC to run into some supply problems when demand rises.
Yet, as we have commented in the past, I feel that OPEC is simply greedy and what it is doing could make the economic turnaround even more difficult. Clearly, OPEC is only looking after itself at a time when countries around the world are sacrificing to turn things around.
I feel that OPEC is wrong to do what it is planning and this is a main reason why the United States has talked about the need to reduce our reliance on Middle East oil. That is why China is pumping billions of exploration and production dollars into African oil countries. The time for OPEC to hold the world hostage needs to end. Just my opinion.
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