The most encouraging aspect of the Organization of Petroleum Exporting Countries' decision to cut production is that the group met and took emergency action. A few weeks ago, OPEC ministers showed little concern about rising stocks and falling prices.
The question now is whether a collective production cut of 1.445 million b/d will halt the price slide, at least until OPEC ministers reconvene July 25. Futures markets act doubtful. Much depends on how quickly and from what levels OPEC members trim output. Much also depends on demand, non-OPEC production, and stock behavior.
Nevertheless, OPEC again has proven itself attentive to the market and willing to act to keep drifting prices from plunging. There may be a rough pattern here. The group grows coyly alarmed when spot prices at refining centers slump below $18/bbl. It acts when they fall below $16/bbl.
So there is a psychological price floor-however hazy. And it exceeds-however slightly-the $15/bbl panic level most oil companies now build into investment plans. That might provide a couple of months' worth of comfort. Maybe, if OPEC stays tuned to the market, it will be enough.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
