September 27, 2003

Uhl and Gaz

OPEC flexes its muscles. I should redo the back-of-the-envelope calculations: what difference for the U.S. economy does it make if oil is $30 a barrel rather than $20 a barrel? BEFORE the regular meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna on Wednesday September 24th, most of the drama was provided by Hugo Chávez, the Venezuelan president, who opined that the Iraq representative should not have been at the get-together because he was an illegitimate stooge of American occupiers. If that is so, Ibrahim Bahr al-Uloum behaved very oddly. His bullish predictions that Iraq could produce at least 3.5m barrels per day (bpd) by 2005 seem to have been among the factors that persuaded the ten members of OPEC's quota system to approve a surprise production cut of 900,000 bpd, to 24.5m bpd. The effect of the cut was to send oil prices sharply higher. The futures price of West Texas Intermediate, the American benchmark, leapt by $1.06, to $28.18. Equities in America retreated on fears that a higher oil price could stymie the incipient economic recovery: the Dow Jones Industrial Average of 30 leading shares fell by 1.57% that day.... Some observers are also speculating that OPEC may be sneakily trying to shift its price target above the current $22-28 range (per barrel, for a basket of Middle Eastern crudes, which tend to trade a couple of dollars below West Texas crude)...

Posted by DeLong at September 27, 2003 05:20 PM | TrackBack


No one should be surprised at OPEC hedging against increased Iraqi oil production. Certainly Bush Co. will be the last to complain as big oil's profits are strongly positively correlates with the real price of crude oil.

Posted by: Lorenzo on September 27, 2003 11:22 PM

Maybe OPEC is reacting to the prospect of a weak Dollar ?

But perhaps pricing oil in Euro or Yen might be a better hedge.

Posted by: khr on September 28, 2003 01:02 AM

OPEC's latest production cut accomplishes a few things, all of a short-term nature: makes some room for Iraq's recovering production and exports (assuming the OPEC-10 implement real cuts, not just paper ones); makes hay while the sun shines (global crude stocks are still relatively low and the northern hemisphere is heading into winter); and restores near-term oil prices to where they would have been, had the large speculative investment funds not sold off their long positions in the first week of September.

Posted by: judith dwarkin on September 29, 2003 01:18 PM
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