I had a feeling we were going to see this pretty soon in response to falling oil prices. It seems that OPEC has grown fond of the idea of oil >$100/bbl. Iran and Venezuela have both been making noise about the need to cut production to defend that price, and today OPEC announced that they would indeed be cutting production by half a million barrels a day:
Sept. 10 (Bloomberg) — Crude oil jumped in New York as OPEC President Chakib Khelil called on members to stop producing more than the group’s set quota, a move that would reduce supplies by 520,000 barrels a day.
The Organization of Petroleum Exporting Countries agreed to cut daily output to their 28.8 million-barrel limit, Khelil said in Vienna today. The group kept its output quota unchanged after adjusting for the departure of Indonesia and including new members Angola and Ecuador.
“It’s definitely a defensive measure to keep prices above $100,” said Jonathan Kornafel, a director for Asia at Hudson Capital Energy. “They don’t want to see us go back to $140 or $150 but they want us over $100. It’s a bit of a shock to the market and that’s why we’re up.”
Just another ‘above ground’ factor that is going to keep oil from falling much below $100. OPEC has the pricing power to achieve this. In fact, a big part of the reason the price got there in the first place was that OPEC cut too much for too long a couple of years ago. Not only did this tighten up supplies, but it also led to a lot of speculation that OPEC oil production had peaked.
As far as not wanting us to go back to $140, I wouldn’t go that far. I think they want to maximize their long-term revenues. If they can get $140 without causing a recession and destroying demand, then I think they would be quite happy with $100 oil. In fact, I recall when some in OPEC were saying that $100 was too high.