Analysis of the OPEC meeting scheduled for Oct. 24, 2008

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Due to the big fall that have taken crude prices in recent months, the Organization of Petroleum Exporting Countries, which controls about 40% of the world's crude production, decided last Monday to call an emergency meeting for the coming Oct. 24.

At this summit, the cartel will analyze the current situation in the oil market, where crude oil, after marking nearly $150 per barrel last July, has been losing about 50% of its value, even falling below $75. It will discuss also the projections for oil demand this year and next, whereas today's OPEC lowered expectations for consumption at 550,000 barrels of crude a day.

In this context, it is expected that OPEC decided to encourage its members to cut one million barrels a day to its production, with the intention of lifting the international oil prices.

We believe that the cut is necessary, because the producers were pressured to produce at maximum capacity during the first half of the year, trying to cope with the uncontrolled escalation in crude prices. It is therefore logical that in this new scenario of low prices, the oil producing countries seek the market rebalance. The difference is that this time they will attempt to contain the fall in prices.

Unfortunately for oil exporters, the world economy is experiencing a crisis that affects with forcefulness the energy consumption, so we do not believe that this OPEC measure will have the enough effect to return the oil to record levels in the coming months. However, a shortage of supply itself may help oil prices fall with less intensity.