Timothy Stolz

OPEC's Cuts Can't Fight Global Recession Headwinds

Let us suppose that the accepted rule of supply and demand exists. That supply being more than the demand, as measured in a given quantity by the Center for Global Energy Studies and/or the US equivalent, the IEA. That demand is now measured to be contracting in 2008, for the first time in 15 years.
Now OPEC comes into the equation with a "stated" and who knows if "real" factor decreasing the supply by 1.5 mbd, that likely will only offset the equation by a portion of the decreasing demand.
At some point in time the OPEC decrease and the steady augmentation of the demand destruction component towards neutral or zero, should occur.
As measured in the beginning of OPEC's involvment in our equation, they really had no impact on the price of oil, cheating or not cheating. As the reduced demand component moves closer to neutral, in theory, OPEC begins to have an influence on the price of oil. In other words, "until the slack is drawn up in the rope, you can't make a noose." That slack is the reduced demand component of the oil price equation too large for OPEC to alter by their recent stated reduction. Maybe later when the demand catches back up with the supply they will have more of an ability to control prices.