On July 11th, crude oil hit an all time high price at nearly $150 a barrel. Since then, the price per barrel has dropped nearly $40. Becasue of this decrease in price, certain members of OPEC are calling for a decrease in production to increase the price. Iran and Venezuela, the second and third highest producing members, are both calling for the cut-back. Venezuela is also calling for a price floor at $100 a barrel. Unfortunately for them, the leading producer of oil in the world, and the main member of OPEC, Saudi Arabia, disagrees. They currently believe that production should remain constant, even if that means prices to continue to fall. They also are calling for a price floor of $80. OPEC will have a meeting Tuesday in Vienna to discuss these possible cut-backs.
Some statistics-
Even with the price falling, oil prices are still 14% higher than last year, and are four times as much as they were five years ago.
2 comments:
well, oil prices were too low for too long, and people started taking cheap oil for granted. How else would you explain the fact that oil cost almost what it cost in the 1970's, except the demand growth has far outstripped the supply growth. Given simple economics, this would tell us that the price should have been higher to act as an equalizer.
As having an uncle that is currently working in Saudi Arabia in the oil industry, the Saudi's have wanted the price of oil to be around $80-90. He has stated that they feel adequately compensated at that price due to the significant increase in the quantity of the U.S. dollar. This price is just a talk on the rig that he helps run but considering he told me this 5 months ago and these news stories are starting to come to light, I have to say it sounds pretty creditable.
I happen to disagree with burningsnowz's idea that oil price was too low. For one, during the Nineties the U.S. dollar was one of the strongest currencies in the world. I feel that supply and demand kept the price at a happy medium until China's drastic increase in demand appeared. Added the the decrease in the U.S. dollar and it explains the significantly increase in oil price. I have no proof but I do feel that there was some significant speculation that was driving up the price of oil also.
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