OPEC and Oil Prices

I got this information via The New York Times and it vaguely perplexed me. Organization of the Petroleum Exporting Countries (OPEC) has called an emergency meeting planned for Friday to discuss the price drop of oil while demand is falling. One of the chairmen said, the obvious response is to slow daily oil production, but they are looking to reach an agreement for a plan with more longevity. The price of oil is down by half since July, and oil prices settled at 79.89 a barrel on Tuesday, which is near the 14-month low it reached last week. Many independent experts believe the global consumption of oil will fall this year, the first time since 1993.

We have witnessed the oil prices fall sharply within the last few weeks, but the inquiry that must be made is why does the price fluctuate so heavily? The same methods are used to extract the oil and it is the same companies selling it. Ok, economics lesson: high supply + low demand = low price, low supply + high demand = high price. Experts also stated that it is paramount that they select an agreeable price, because pricing the oil too high will continue to reduce the demand by contributing to a global recession. OPEC is responsible for 40% of the worlds oil exports and they suspect that it will be difficult to get all of its members to abide by price cuts.

This problem can be alleviated by whomever the supplier is at the top if they stop trying to exaggerate their profit. Lets speculate that for the last 10 years Oil Company A has been extracting and supplying oil, but for the last 5 years A's clients have been increasing the amount of oil they purchase. Do you charge your client more money because they are buying more oil from you, usually its the opposite, the more you buy the better the deal. Sheer common sense will say that there is no shortage if OPEC is worried about demand declining, because if their supply was diminishing then they would welcome lower demand to keep them running longer. So why do they keep lifting the price? Granted, in the world there is always inflation but the rapid pace at which they were increasing was not consistent with the rest of the world. It was inevitable for their greed to devour them. If they never would have "gassed" (double entendre) the price up then there probably would not be such a clamoring for alternate forms of energy or a strong focus in another direction and they could have cruised along until, who knows, 2043.

In this world it is funny how everything balances out. The nerd eventually becomes the cool guy, just like the greedy soon become the needy. We shall see what happens, hopefully gas will remain consistent and reasonable. I just found this story highly riveting, the fact that they are worried about the oil prices being at the level where it probably should have been anyway. Less profit for the ones who have more than they can spend, i know, i've received the emails of the rich oil execs and their preposterous as well as hyperbolic lifestyles.