OPEC's Short Term Memory

Now, I can't guarantee it was intentional, but it seems to me that OPEC's strategy during the 90's was to oversupply oil to the United States in order to keep the price low and jack up demand for gasoline. We complied, by driving SUV's, huge "duelly" diesel pickup trucks, and in general using gas like it'd be a buck a gallon forever. Then...the price went up. And up. And up.

Now I feel like OPEC has forgotten how great the 90's worked out for them. They think they should follow a typical supply-demand curve, and in order to maintain price they must decrease supply or increase demand...with demand flat, they are left only to cut supply, and hope that the price recovers.

But it isn't recovering. They've made 3 cuts in the last few months, and it hasn't helped in the slightest. OPEC, remember your roots! Why doesn't OPEC do what it did before, and oversupply until demand once again outpaces supply and the prices rockets back up to 100+.

The short answer is that they have tasted the sweet land of $100/barrel oil and aren't willing to take the long road back there. Better to cut production and quickly recover price. Many OPEC countries had set their government budgets based on $80, $90, or $100/barrel oil, and now they're deep in the red. They want a quick fix. But there doesn't seem to be one. Cutting production by a huge, huge amount has done nothing - the price dropped the day they announced the biggest cut, ever.

So OPEC, maybe you should take my advice. Produce all the oil you can, and sell it as fast as you can, as cheaply as you can, until every American, Chinese, Indian, European, and Russian has a big fat SUV, then cut production by 4.4 million barrels. The price will go through the stratosphere. But I do not think cutting supply will raise the price. You must increase demand instead.


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