OPEC Cuts, Consumers Bleed
The decision by the Organization of Petroleum Exporting Countries Wednesday to make a 5 percent production cut will likely make American consumers bleed, reports CBS News Correspondent Byron Pitts.
OPEC's reduction of 1.5 million barrels a day, or 5 percent of its current quota, aims to keep oil prices afloat near $25 a barrel. It was approved in a formal meeting at the cartel's headquarters in Vienna, Austria.
The cuts, to take effect Feb. 1, are aimed at keeping crude prices firm ahead of an expected slowdown in U.S. economic growth and diminishing seasonal demand for refined products such as heating oil.
But OPEC's decision could make the suspected economic slowdown a certainty.
"The fact that they're driving crude oil and gasoline and heating oil and diesel prices up again in the face of U.S. citizens seeing record-high heating bills — its just like a double whammy," said Bill O'Grady, an oil analyst at A.G. Edwards. "And it's going to have an impact."
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Analysts say Americans could see the cost of gasoline rise by the spring as a result of OPEC's decision Wednesday.
The decrease in production is sure to disappoint the governments of many oil-importing nations. The United States and European Union had lobbied hard for OPEC to keep crude flowing at current levels, given their fears of U.S. economic fragility and a possible global recession.
The U.S. request was even made in person, by Energy Secretary Bill Richardson, who Monday wound up a six-nation diplomatic tour of OPEC cartel members.
But OPEC members feel they still need to make up ground lost three years ago, when oil prices hit rock bottom. Poorer countries like Venezuela suffered severely from the drop-off in revenue.
"Blaming OPEC for raising prices forgets that OPEC had to endure $10 oil prices only in 1998," said Fareed Mohamedi, chief economist at the Petroleum Finance Company, "and that nearly bankrupted most countries in the world."
OPEC insists it had to cut crude production now to avoid drowning in surplus oil when winter ends and demand drops.
OPEC Secretary-General Ali Rodriguez said the group had been determined to stem a swift decline in oil prices from a recent 10-year high of $35.
"Stocks are increasing and in the second quarter, we saw a sharp fall in prices coming," he said. "We wanted to maintain the stability of the market and of course of prices."
"This agreement will keep oil prices stable and not harm producers or consumers," said Libya's OPEC representative Ahmed Abdulkarim.
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In London, the Centre for Global Energy Studies, run by ex-Saudi oil minister Sheikh Zaki Yamani, says OPEC's customers will feel the impact of the decision made at this week's meeting.
"OPEC appears to believe that the world economy can live happily with $30 oil. It is wrong," said the CGES, in a report. "By cutting output from February onwards, OPEC will prevent the rebuilding of (oil inventories) that the world needs."
Analysts said cartel deliveries in practice were likely to subside by closer to 1 million bpd than the 1.5 million on paper because some countries were unable to meet their previous quotas.
OPEC's deal is effective until the end of 2001 but ministers will meet to review policy in March.
But some analysts believe the governments of member countries are too dependent on oil revenues to make solid, long-term decisions.
"They like the money. That's the bottom line. They like the revenue stream," said O'Grady. "They've gotten used to it. It's solving a lot of problems for them."
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