OPEC to restricts supplies to shore up oil prices

11 December 2008

OPEC is planning to cut its production in crude oil sharply to support spiralling prices. Crude oil for January delivery rose $1.45, or 3.4 per cent, to end at $43.52 a barrel on the New York Mercantile Exchange amidst volatile trading and speculation.

Kishore Narne, research head, Anand Rathi Commodities, says,'' I expect a cut of around 2-2.5 million barrels per day - the largest cut ever.''

So far, OPEC's cuts have not slowed the drop in the price of oil. For example, imports to China fell in November and American crude oil inventories are rising, all putting downward pressure on prices regardless of what supplier nations do. Since the last OPEC production cut on 2 October 2008, oil prices have dropped 30 per cent.

Part of the reason for this is not all OPEC members have complied with the cut. Some countries like Iran and even Saudi Arabia had not reduced production inspite of the OPEC decision.

Demand-Supply factors 
The demand for oil has been falling sharply due to global recession. The highest fall of 23-24 per cent has been in the US in the transportation and retail sector.

Besides the US, the demand for crude oil has been falling the China and other India and Brazil.