What’s Behind OPEC’s Production Hike?

Recent shifts in the oil market have driven the Saudis to want to cool things with a 500,000 barrel a day increase. So far, it hasn’t worked

Until just before the Sept. 11 OPEC meeting in Vienna, just about every prognosticator, including the OPEC chiefs themselves, tended to rule out any increase in oil production. So why did OPEC announce a 500,000 barrel a day increase beginning Nov. 1?

The answer, analysts say, is that a recent, dramatic shift in the dynamics of the oil market alarmed Saudi Arabia, OPEC’s de facto leader. At the same time, the Saudis recognized that credit jitters were threatening the economies of their customers. So they persuaded their colleagues to at least make a gesture to try to cool things down.


So far, it hasn’t worked. On Sept. 12, U.S. light crude for October delivery set a record high of $79.29 a barrel, beating the previous record of $78.77 reached on Aug, 1. Shares in oil majors such as Exxon Mobil (XOM), Chevron (CVX), and Total (TOT) traded slightly up on Sept. 12.

Oil Futures Curve Flipped

Contrary to what many people may believe, the Saudis think about a lot more than just keeping current prices high. They have a huge chunk of the world’s oil reserves and want to encourage their customers to keep up their oil habit for decades more. They also don’t want to exacerbate the current problems with the world economy