OPEC cuts output - Oil prices to remain high

December 20, 2006

In its December 14 meeting in Nigeria, OPEC agreed to cut its supply quota by 500,000 barrels per day (bpd) which is about 2% of its 27.5 million bpd total output.The cut won’t take place until February, to allow for the winter home heating oil season.

What OPEC’s decision means for oil prices
Since OPEC contributes 35% of the world’s oil supply, it’s pronouncements impact world oil prices. However, OPEC can only suggest guidelines for its members, and often its members don’t actually cut their production.  In October, OPEC announced that it would cut output by 1.2 million bpd, but production remained at 27.1 million bpd in November, according to the International Energy Agency (IEA).

The good news is that OPEC continues to support a consistent range in oil prices of between $60-70 per barrel. This decreases volatility in not only the commodities markets, but also in the bond and stock markets. That is because governments and corporations, who use oil, can plan better around a consistent range. This reduced volatility means a higher relative return with less risk for your personal finances.

Action steps:
Plan for oil and gas to remain around their current levels...unless the hedge funds get involved again. For more action steps, read the WorldMoneyWatch report, "The Facts About World Peak Oil".

Source: VOA News, “OPEC delays production cuts until February”, December 14, 2006; RIA Novosti, “Russia may be thankful for OPEC”, December 18, 2006.