Is oil going back under $100 a barrel? Not if Opec can help it

Is it over? Was that the oil shock? Can we relax, sit back and expect our energy bills and prices at the pumps to tumble? It is true that the price of oil is down. In early July, the price peaked at $147 a barrel. Yesterday it hit $106. A fall of almost 30% in two months suggests the old rule that “nothing cures high prices like high prices” may finally be working in the oil market.

Americans used less in their cars over the summer: demand in the US fell by 800,000 barrels a day in the first half of this year, the largest decline for 26 years. In the UK, Ryanair is grounding more planes this winter. The global economy is slowing – even China, the biggest source of new demand, may soon be feeling colder breezes. But what’s this? Leading members of Opec, the Organisation of Petroleum Exporting Countries, want to reduce oil supplies to keep the price high.


The 13 members of the cartel meet in Vienna next week and Iran and Venezuela have made their position clear. “Oil supply must be well proportioned with demand, and control over Opec’s excess oil supply is an issue that must be discussed,” said Gholam Hossein Nozari, Iran’s oil minister, this week. Translation: he doesn’t want to see the price fall below $100.

To many in the west, the stance will seem outrageous. Gordon Brown was furious with Opec in May, when the price was $135 a barrel. “It is, as people will recognise, a scandal that 40% of the oil is controlled by Opec, that their decisions can restrict the supply of oil to the rest of the world, and that at a time when oil is desperately needed and supply needs to expand that Opec can withhold supply from the market,” he said.

Brown sounded like a buttoned-up version of the property tycoon Donald Trump, whose regular rants against Opec have entertained viewers of US financial television channels in the past year.

“It is an illegal monopoly,” he told CNBC a few months ago. “If businesses ever formed Opec, everybody would be put in jail. Every time a country hits oil, they are invited into the cartel. It’s a disgrace.”

Guardian