OPEC Conundrum: Politics or Economics Behind Oil Price Drop?
The crude oil market is experiencing confusion due to contradictory signals from OPEC. Some analysts believe that the recent price drop, which has brought prices down to around $60 for the first time in months, may be a result of politics rather than economic fundamentals.
A Gallup poll conducted in September found that 42% of respondents believed that the Bush administration deliberately manipulated gasoline prices to decrease them before the November congressional elections. However, 53% did not believe there was any manipulation.
US crude inventory levels were at 328.1 million barrels on September 29, while distillates such as diesel and heating oil were at 151.5 million barrels, which is 19% above the five-year average. The call on OPEC crude was less than previous months, with OPEC pumping 29.47 million bpd in September against an official output ceiling of 28 million bpd.
OPEC President Edmund Daukoru confirmed that a reduction could be a million bpd, but Saudi Arabia's contribution to the output cut is unclear, with varying figures quoted from 100,000 to 300,000 barrels per day. The US Energy Secretary Sam Bodman expressed concern that OPEC should not overreact to lower oil prices by cutting production.
The debate within OPEC highlights a tension between short-term and long-term goals, as producers are torn between supporting prices and incomes in the short term, while also keeping OPEC's product competitive in relation to non-OPEC producers and alternative fuels.