OPEC to Hold the Line

The Organization of the Petroleum Exporting Countries probably intends to hold production among its members at current levels. That is good news for oil importing nations and consumers and industries concerned about prices.

OPEC likely will keep targets at 30 million barrels a day. It does so in the face of what appears to be a drop in demand worldwide, which may accelerate next year. Weak economies in the U.S., UK, EU and Japan will moderate demand. Even China, the largest net importer of oil, says its GDP growth has flagged recently.

Consumers have the most to lose if oil prices move much higher. Gas prices are a sensitive point when real income for most workers in the U.S. and elsewhere in the developed world has moved up slowly or not at all since the recession began. Airlines and firms that rely on petrochemicals also would need to deal with margin compression based on higher prices.

OPEC has walked a thin line since crude hit $141 in summer of 2008. The recession had just begun then. Oil above $100 would have deepened the recession, but oil fell sharply in early 2009. The drop contributed to a cost structure that kept energy prices down and probably aided the recovery, such as it is.

OPEC member nations could fill their treasuries quickly if crude prices remained well above $100. That would be true in the short run. But high oil prices might help trigger a new recession. That would make the flow of money to OPEC countries shrink, and perhaps shrink quickly.

OPEC, if it holds production, will create a balance that likely will help push prices down — perhaps not a great deal, but probably enough to help sustain the world’s struggling economic recovery.

Douglas A. McIntyre