The cartel is set to cut 1 million barrels of production but that may actually force prices lower in the long run. But it could also undermine prices in the long run, energy experts said, by encouraging more conservation and investment in alternative energy. Furthermore, the cut by OPEC could actually come back and haunt the cartel later since it gives the world more of a cushion against further output disruptions in the future. Initially, news of the planned cut last week sent prices rising back above $60 a barrel. But prices have fallen back since then, to about $58 Wednesday, as OPEC ministers bicker over exactly which nations should cut how much, and when they will do it.
Since OPEC accounts for only 40% of world production, I doubt they will stick to their quota. They are trying to jawbone the market.
I believe the current OPEC target is actually $55. For years, OPEC has targeted price according to the strength or weakness of the US dollar, the intent being to maintain a constant price per barrel in discounted dollars. However, in the most recent run-up only about 30% can be attributed to dollar weakness. Apparently the rest was due to a combination of increased demand and futures speculation. With all this talk of increased demand being responsible for high gas prices, many do not realize that in the US, roughly 30% of the increase is due to dollar weakness. It would seem that in every economy, continued large balance of payment deficits eventually lead to currency weakness.
OPEC is thinking of itself now and is worried about the losses they might face due to the low cost paid for each barrel now. They forgot that they raised the prices in the same manner at that time, and when the prices rose no one thought of cutting production, why, because the industries were making huge profits out of the rising price this is what we call as unfair trade practices.