OPEC to Increase Production Cuts, Oil Prices Rise

Thanks to word that OPEC will begin cutting oil production by an addition 500,000 barrels per day beginning in February 2007, the price of a barrel of crude oil rose by nearly $1 to close the trading day at $63.43.  This latest cut will be in addition to the 1.2 million barrel per day cut OPEC agreed upon back in October.

It appears OPEC went ahead with additional production cuts in order to aggressively defend the price of $60 per barrel.  On numerous occasions OPEC has made statements that it feels $60 per barrel is the fair market price given current supply and demand.

Unfortunately for OPEC these production cuts may ultimately come back to haunt them due to the fact the world economy is slowing and increased energy prices will only exacerbate underlying economic problems.  And considering the economy of the world’s largest oil consumer (the United States) seems to be very much in flux, a rapid increase in oil and gasoline prices could be the straw that breaks the camel’s back.

And if that happens, $60 per barrel will be the least of OPEC’s concerns.

In addition to the news that OPEC would decrease its daily oil production, the weather was also a factor in the increase in the price of oil.  Thanks to a very dense fog, several ships have been delayed from making crude oil deliveries to several refineries along the Gulf Coast.  The delay in delivery could force several refineries to temporarily reduce output.


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