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Sunday, 15 March 2009

OPEC Cuts: Will They or Won’t They? And How Much Does it Matter? (Registration required)

OPEC, the group of oil producing countries that together account for about 40% of global petroleum production are meeting in Vienna this weekend. They are reportedly considering production cuts in addition to those previously announced (a cumulative 4.2mbd).

By all accounts OPEC members are worried about demand, and they should be. The outlook for the global economy suggests that demand for oil and oil products will continue to fall, particularly in the OECD, but also in most emerging economies – and the pace of demand growth slowed sharply even in countries like China that accounted for much of the demand growth in recent years. 2009 is likely to mark sharp demand reductions for crude oil - and that suggests oil prices may continue to be weak despite production cuts.

As with most economic projections, the outlook for global oil demand keeps coming down, the IEA, the US DOE and OPEC’s own researchers have continued to scale down estimated demand. OPEC’s most recent report, released Friday March 13, underscored these worries and could have been laying the groundwork for further cuts.