Here's a tip for Western consumers: Enjoy the recent moderation
in oil prices while you can. OPEC is out to prove that it's still a
king of cartels.
With the world awash in petroleum stocks, OPEC ministers last
week decided that it's time they lowered production. Long term, they
may want to set a higher floor under volatile oil prices, in part to
protect themselves against losses caused by the declining value of
More broadly, the cartel seems to have calculated that the higher
prices won't curb global economic growth and that many
industrialized countries - notably the US - aren't chafing to the
point where they will institute aggressive conservation measures or
dramatically reduce their dependence on Mideast oil.
As a result, the US may have entered an era in which the price of
a gallon of regular gas will seldom slip much below $2. OPEC states
appear intent on protecting themselves against unforeseen downturns
in petroleum markets.
"There is too much supply out there right now and it's filling up
inventories. And what OPEC wants to do is take some of that supply
off market and raise the price," says Mark Baxter, director of the
Maguire Energy Institute at Southern Methodist University in Dallas.
If you think that oil and gas prices still seem a lot higher than
they used to be, you're right - as long as you're looking at a
context larger than a few months.
Oil hit a record of $55 a barrel in October. Since then it has
slumped to around $40, with OPEC producing crude at its highest rate
in 25 years.
That relief is welcome, but relative. Even at $40, oil prices
remain around 30 percent higher than they were at the beginning of
And prices may rise again soon. Last Friday, OPEC ministers
agreed to cut daily oil production by one million barrels, beginning
Jan. 1. They'll meet again on Jan. 30 to discuss possible further
It's also possible that this reduction will simply stabilize
prices, preventing a return to last year's levels.
"This is a preventative measure. It is enough to sharpen the
market," said Algerian Energy Minster Chakib Khelil, following the
Perhaps the main reason that OPEC moved now is the rapidity with
which prices have been sinking. Much of this fall's decline has
occurred in the past two weeks.
Thus ministers may simply be exercising caution. They undoubtedly
remember the 1998 Asian financial crisis, which sent prices into
"Nobody thinks that is going to happen today, but they want to
stay ahead of the market," says Rick Mueller, a senior oil analyst
at Energy Security Analysis, Inc., in Wakefield, Mass. …