Environmental Engineering Reference
In-Depth Information
more relaxed view of rising oil prices than of falling prices. So for most of
the 2004-08 rise in the oil price to the record of $147 in July 2008, OPEC
stayed pretty passive. Indeed, its only major move during this period was
to cut supply in early 2007, because it was worried about a rapid build-up
of oil stocks.
In the latter stages of this climb in oil prices, some OPEC members
began to worry about high prices leading to “demand destruction” for
their product. But that was nothing like the collective panic that led OPEC
in December 2008 - as the extent of the financial crisis and economic
recession became clear - to announce a 4.2mb/d cut back from the col-
lective 29mb/d level they had agreed in September 2008.
A reduction of this size taxes OPEC discipline sorely. This was evident
in spring 2009 even from OPEC's own publications (which, bizarrely,
use secondary sources on the production of OPEC countries that gener-
ally refuse to divulge their own figures on their own output). This shows
Iran, Nigeria, Angola and Venezuela to be the biggest cheaters on their
output quotas. This was no surprise. Iran, Nigeria, and Venezuela all have
big populations and all traditionally find it harder to accept quota cuts
than the less populous states of the Arabian peninsula. In addition to the
internal OPEC tension between large and small population states, there
is also disagreement inside the cartel over the size of quotas which do not
reflect reserves.
Certainly OPEC could be made more efficient. Its quotas could be
made more rational. And it would help the cartel if its members did not
treat their oil-production figures as state secrets. But perhaps the world
should be grateful that OPEC is not more disciplined in its quota deci-
sions. Such decisions, instead of smoothing oil-price movements, can
sometimes seriously aggravate them. The classic case was OPEC's 1997
decision to ignore the effect of the Asian crisis of that year and to increase
oil production, in a way that triggered a collapse of the oil price in 1998.
The decision to ignore the Asian downturn was all the stranger given the
fact that OPEC took the decision in Jakarta, one of the very few times that
OPEC has met in Asia.
