In reaction to the falling crude oil price, OPEC decides to cut down the total oil production by 1.5 million barrels per day. But if the rational behind cutting the production to increase the demand and price, then it is difficult to happen. In fact since it began talking of curbing production, its crude oil price has dipped 11%.
Reasons
OPEC's controlling power is limited
Falling demand in today's crisis hit economies
I remember last time oil prices fell below $50 a barrel was at the end of 2006, prompting the Saudis and other producers to cut production, totaling 1.7 million barrels a day. The strategy worked then, and helped set the stage for last price run.
Today the picture is much grimmer. Demand in the United States, the world's biggest oil consumer, has fallen to the lowest level in more than five years, at 18.6 million barrels a day.
But the falling price might make sense to some of the OPEC members. Lower oil prices would likely affect Saudi Arabia's main regional rival Iran.
A period of lower oil prices might reduce some investments in alternative forms of energy that compete with oil, which are largely predicated on higher prices. This would extend the influence of producers with large reserves, such as the Saudis, and ensure the long-term role of oil in the global economy.
All send and done..... the current decline in prices could set the stage for a new energy shock when the economy and demand eventually pick up....
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