Why are Saudi Arabia and other OPEC countries allowing the price of crude oil to fall so dramatically? Can they not control the price of oil by adjusting production?
OPEC (the Organization of Petroleum Exporting Countries) does have significant control over production, but it is not an instantaneous process and changes don’t always have an immediate effect. In early September the cartel said it would cut production by about 520,000 barrels a day, and OPEC is set to meet Oct. 24 to talk about possible further action. (On Thursday it shifted the meeting forward from Nov. 18.) Still, as University of Alberta business professor Joseph Doucet points out, OPEC has no direct control over prices, but can merely control the quantity of its production, which has an indirect influence on prices. Other factors – such as the level of crude and gasoline supplies in the United States – can have a greater impact. In addition, Prof. Doucet says, oil prices have been shifting quickly in the past few weeks and production changes take some time to put into place. The internal politics of OPEC account for yet another complicating factor. “Saudi Arabia has the largest r
