EXPECTATIONS….A couple of weeks ago there was a lot of chatter about the possibility of OPEC cutting production levels. To me, that was crazy talk. With oil prices skyrocketing, why would you talk about cutting production?
My guess is that they’re playing games: announce the possibility of cuts, and then, when production quotas stay level after all, everyone breathes a sigh of relief. And once again we’re all distracted from the very real prospect that, quite likely, keeping production level is the best OPEC can do these days. They can’t increase production anymore — not for long and not in serious quantities, anyway. Iraq is pretty much the only Middle Eastern country left with any spare pumping capacity, but for obvious reasons it can’t take advantage of that at the moment.
Right on schedule, OPEC delivers:
Oil prices reached a record close, surging above $104 after OPEC decided Wednesday to keep its production unchanged….But the Organization of the Petroleum Exporting Countries was not completely oblivious to the political and economic impact of $100 oil. The sharp surge in prices recently has deterred the group’s ministers from cutting their production, a move they seriously contemplated a few weeks ago to offset a seasonal slowdown in global oil demand in the second quarter.
And that, ladies and gentlemen, is how the expectations game is played.
Not that I blame them. OPEC could probably increase production a little bit, but what’s in it for them? They’ve got a pretty good thing going right now, and reducing their own revenue just because George Bush wants them to doesn’t really make sense. What’s he ever done for them, after all?