OPEC and the Price of Oil

Strategic Forecasting, Inc. had a short analysis this morning on the OPEC meeting scheduled for later this week. OPEC representatives will be meeting to discuss production levels in light of recent declines in the price of oil that have drastically cut revenues.

Oil prices have dropped more than 50 percent in just the last 90 days. A barrel of oil is going for about $70, down significantly from its high of $147. According to STRATFOR, OPEC has already given indications that it may cut output by as much as 2 million barrels per day. OPEC is worried that the price of oil will continue to drop as a result of lowered demand resulting from global economic troubles. "Extra oil in a market where global demand is on an inevitable decline," STRATFOR says, "will lead the price of oil to collapse."

Declining prices can be dangerous for some countries, like Iran and Venezuela, who are heavily dependent on their oil revenues. Both countries, STRATFOR notes, have been calling for a cut in production for some time now.

The main player to watch, the analysis says, is Saudi Arabia, the world's leading oil producer. And right now, STRATFOR argues, "...there is no indication from Riyadh that the Saudis are planning to resist a meaningful cut in output to sustain the price of oil and weaken their main competitors." If Saudi Arabia agrees to the cut in production, we can expect declining oil prices to stabilize.

So, as has been the case for many, many years, we are at the mercy of a select group of countries when it comes to the price of oil. Both presidential candidates recognize that we must decrease, or eliminate entirely, our dependence on foreign oil. Eventually, we will have to eliminate our dependence on oil completely. It is a finite resource, and when it's gone, it's gone.

In the meantime, though, we should do a couple of things. First, we should drill here. This is a short term solution, but it will help to alleviate supply issues and reduce prices while we invest in long-term alternative sources of energy.

Second, we should explore the possibility of getting more oil from Canada. Right now, Canada supplies just over 20 percent of America's crude imports. Investing in Canadian efforts to produce more oil could increase supply in the United States by shifting more of our reliance on imported oil to a non-hostile nation.

It's true that we can't drill our way out of this problem. But drilling now for known oil deposits and investing in the oil industry of a friendly state like Canada could reduce our dependence on oil from nations like Venezuela and Saudi Arabia, increase supplies here in the United States, and help keep prices down.