Wednesday, January 14, 2009

Take That, OPEC!

It seems that no matter what the Saudi's do, they cannot halt production enough to have any significant effect on oil prices in a time when the entire world's economy is in a downturn. Today in the WSJ:
Global economic woes continue to trump OPEC actions amid signs of weakening energy demand in almost every corner of the world. Reports of rising crude stocks and falling retail sales in the U.S. drove oil prices down again Wednesday, with U.S. benchmark crude settling at $37.28 on the New York Mercantile Exchange, down 1.3% from Tuesday.
Oil production is at its lowest point since 2003. That means that about 7.7 million barrels of black gold are being produced each day. And no matter how much they cut production, the price of oil continues to fall. It's already fallen 70% since July. Keep in mind that OPEC produces about 40% of the world's daily oil supply, so it would seem reasonable that a sharp drop in supply would make the cost of oil increase dramatically. But alas, young grasshopper, most economic principles contain a certain little premise that goes like this: Everything else being equal...or holding all other factors constant... This is precisely why oil prices are so unpredictable. There are too many factors involved. It's impossible to even account for some of these political factors in some economic model with traditional line graphs that pit supply against demand. The good news is that I filled up my car today for under $20. Take that, OPEC!