Winter’s coming and oil prices have been falling. That makes OPEC anxious. A quick remedy is an “emergency” meeting of the cartel’s members, with a goal of hammering out an agreement on a production cut.
Easier said than done. Oh, sure, there’ll be an announcement from the meeting in Qatar later this week. The message for consumption from the confab, which starts on Wednesday, will no doubt be a one-million-barrel-a-day reduction promised (threatened?) by various sources. Algerian Energy Minister Chehib Khelil yesterday said that OPEC will officially unveil such a cut. Meanwhile, Qatar Energy Minister Abdullah bin Hamad al-Attiyah said that OPEC will discuss “the possibility of reducing total oil output by one million barrels a day (b/d) to stop any further decline in prices.”
So far, Mr. Market isn’t overly impressed. The November crude futures contract in early New York trading today was largely unchanged from its Friday close of $58.57. That doesn’t mean that OPEC won’t be able to talk up the price this week, or even over the coming weeks and months. With the onset of winter buying, demand is likely to become increasingly robust.
That said, consensus is easier for cartels when prices are rising. It’s a whole other ball game when selling dominates. Indeed, OPEC’s history is more than a little blemished when it comes to keeping member promises intact on the matter of cutting production in the face of lower prices.
The challenge is hardly unique to OPEC. Human nature being what it is, profit maximizing actions invariably overshadow those that emphasize a group over the individual Adam Smith is always happy to explain the concept in more detail for those who’re interested. Suffice to say, past experience suggests that maintaining quotas on new production cuts will be a bit like keeping water from following downhill.