Mixed Messages Make Next OPEC Action Hard to Predict

OPEC headquarters (image: AFP)

As OPEC’s March 15 meeting in Vienna draws closer, a parade of comments in favor of and against additional production cuts make it difficult to predict what will be decided at the meeting.  Officials from OPEC member states Iran and Venezuela have said that additional production cuts at the March 15 meeting are necessary to further stabilize oil prices.  Officials from Saudi Arabia, on the other hand, have said that, due to the recent upward trend in crude prices, additional production cuts are not necessary.

Just today, AFP reported that the energy minister for OPEC member Algeria warned that “the market would continue sliding if the cartel refrained from cutting output this weekend.”  In other words, more production cuts are needed to prevent oil prices from sliding backwards into the abyss.  US Energy Secretary Steven Chu also spoke about OPEC’s upcoming meeting today, telling reporters that he will “tell [OPEC] that higher crude oil prices will slow the recovery of the world economy,” Reuters reports. In other words, he plans to remind OPEC that lower oil prices are the only bright spot in the current economic climate, and should therefore not be pumped up.

OPEC’s most recent production cuts were widely expected.  The precipitous fall of the price of crude from its July 2008 peak of $147 a barrel was a red alert for OPEC–they had to cut production and cut it fast in order to stop the bleeding.  This time, however, it looks as though previous reductions have actually helped to keep prices from falling too far too fast.  Despite a 7 percent drop in the price of crude today and a few other down days, the price of oil has been rising steadily since it hit a low point of $33 in late December.  On the other hand, the general instability of the world economy seems to mean that anything can happen, including a sudden drop-off of oil prices.

OPEC will have much to consider at their meeting on Sunday, which will no doubt include lively debate.  WIth so many conflicting statements and so much contradictory data preceding the meeting, it is impossible to guess at what will happen.  Whatever decision is made, the price of oil will have a strong reaction on Monday morning.