IEA v. OPEC: oil loses

IEA v. OPEC: oil loses

Wednesday, November 12, 2008

With the price of crude oil falling to $56.58 (U.S.) a barrel on Wednesday, down $2.75, the energy market is clearly rattled by the effect of lower consumption amid the global economic slowdown. Carl Weinberg, chief economist at High Frequency Economics,[amp]nbsp;believes that nervousness over the price of oil could rise[amp]nbsp;with the release of the[amp]nbsp;International Energy Agency's monthly forecasts on supply and demand, due out on Thursday.

“We should expect the IEA's markdowns to be startling, since the latest economic growth forecasts from the IMF, the OECD and others have been startling,” he said in a note. “Thus, tomorrow should be a startling day for oil traders.”

He noted that OPEC has already agreed to a cut in its production quotas, amounting to a 5 per cent slice, but the cuts haven't kicked in yet and have certainly not boosted the price of oil, which stood at about $60 a barrel when the cuts were announced at the end of October.

At the same time, Mr. Weinberg doesn't have much faith in the cartel to maintain production cuts, especially among its smaller members.

“This is what happens in cartels: When prices fall, everyone has an incentive to cheat – to boost production – in order to support revenues,” he said. “Cartels are inherently unstable.”

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