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Energy

An OPEC Cut That Doesn’t Count

Photo of Douglas A. McIntyre
By Douglas A. McIntyre Updated Published
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Tx00338coilwellgusherodessatexasposOPEC said it would cut oil production by 1.5 million barrels a day. Its normal output is about 32 million, so in most cases since the embargo in 1973/74, that would mean a lot. It might take crude up 10% or 20%. In this recession, it will hardly matter at all.

OPEC knows how deep the current recession is. The cartel does not want to drive prices up too much. It simply wants to keep them from falling. If it can keep crude around $70, its members can get by, even if the salad days are over

OPEC would also prefer not to deepen an economic slowdown. It doesn’t want to be blamed for millions of people losing their jobs. It does not want the burden of drops in sales for everything from cars to bottles of beer which might be caused by higher gas prices.

OPEC is also aware that there is no guarantee countries such as Russian and Canada will follow its move. If supply levels only drop modestly, the cartel’s actions may not mean much. It needs to appear moderate so that the other 60% of the oil production facilities across the world do not simply open the gates and keep the crude coming.

OPEC may be at great risk of surviving. Ironically, it has great power when the economy is strong. China needs it to fuel growth. America needs it for all those cars it sells and all those shoppers going to malls.
In a recession, OPEC becomes a eunuch. If things in the global economy stay bad, it may never recover to its previous state.

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Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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