Tuesday, September 19, 2006

OPEC: Prices out of balance

OPEC is whining because oil prices are falling:

OPEC ministers could hold an emergency meeting ahead of the next regular conference in December as the oil market is clearly "out of balance" and prices are falling, a senior OPEC official has said.

"We are watching closely the deterioration in prices, particularly the OPEC basket ... The deterioration in prices has crossed (the line)," OPEC acting secretary general Mohammad Barkindo told reporters Tuesday.

But he declined to specify a price at which the oil-producing cartel would act to trim production to shore-up prices.

This is the problem with a psuedo-monopoly. As long as things are heading their way and oil is booming, OPEC is happy. As soon as prices begin to correct themselves the market is "out of balance".

What this should tell you is that the market is out of balance...and its correcting itself. There's no way in a commodity market for the market to be moving in either direction without some sort of stimulus. If it moves up, its because of scarcity (or fears of scarcity - see the past six months). If it moves down, its because of excess supply in the face of current or future demand. Simple economics don't seem to apply to the oil market, though.

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