WASHINGTON -- Citing a deteriorating world economy, OPEC on Thursday called a special meeting for next month to consider options. The announcement suggests the cartel will likely cut production in a bid to put a floor under rapidly falling oil prices.
Citing a deteriorating world economy, OPEC on Thursday called a special meeting for next month to consider options. The announcement suggests the cartel will likely cut production in a bid to put a floor under rapidly falling oil prices.
But given the weakening economy, which likely will lead consumers and businesses around the globe to further reduce oil consumption, the Organization of Petroleum Exporting Countries will have a hard time reversing the downward momentum in prices, analysts say. Oil prices continued to drop Thursday to the lowest in nearly a year even after OPEC's announcement.
"They may get prices to rally for a brief period of time, but the history shows us that they are incapable of cutting enough to arrest a price decline once it gets going," says Peter Beutel, president of energy consulting firm Cameron Hanover.
He notes that consumers have already scaled back their energy use based on record-high prices seen earlier this year. Habits, such as carpooling and combining shopping trips, are likely to stick with consumers for years.
High prices "kill a certain amount of consumption that never comes back," Beutel says, noting he expects oil prices to fall $20 or more from current levels.
Oil prices have plunged 40% since hitting a peak closing price of $145.29 more than three months ago. Prices have been falling as the financial turmoil threatens the world economy, and thus, demand.
Thursday, the price of a barrel of light, sweet crude oil trading for delivery in November fell $2.36 to $86.59. That was the lowest since Oct. 23, 2007. The drop came even after OPEC said it would hold a special meeting in Vienna on Nov. 18.
Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University, says cartel members may meet even sooner to cut production if prices continue to fall rapidly. But Bullock says he wouldn't expect anything too drastic from OPEC.
"They have taken a lot of political heat in the last year, and I don't think they want to be seen as piling on, given the financial crisis right now," he says.
Plummeting oil costs are leading to a rapid fall in the price at the pump. Motor club AAA and the Oil Price Information Service on Thursday said the nationwide average price of a gallon of regular gasoline was $3.403, down more than 4 cents from Wednesday and 25 cents below the price of a month ago. Diesel has fallen below $4, where it has been for months.