Volatile Oil Prices Leave OPEC Worried

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OPEC called an emergency meeting for next week to address fluctuating oil prices. Consumers should enjoy the price break, but ultimately this could be bad news for everyone, an analyst says.

MADELEINE BRAND, host:

From NPR News, this is Day to Day. In this bad news economy, here's a little good news. Oil prices keep falling down to around $70 a barrel. That means gas prices are falling, too. That's good for you, maybe not so good for OPEC. Marketplace's Nancy Marshall-Genzer is here now. Nancy, I understand OPEC members are complaining that the oil market is destabilized. What does that mean?

NANCY MARSHALL-GENZER: Well, obviously, prices are all over the place. They're not stable or predictable in any way and that is destabilizing for the oil industry. It's hard to plan for the future if you don't know where oil prices will be in five years. Oil producers say that the volatile prices make it hard to plan, for example, long-term oil exploration projects. I talked about this with Fadel Gheit. He's an oil analyst with Oppenheimer and he says it would be best if oil prices stayed in a band, say below $70 a barrel.

Mr. FADEL GHEIT (Oil Analyst, Oppenheimer & Co.): I would say between 50 and 60 or 50 and 70, but not obviously between 60 and 150.

BRAND: Right. So, Nancy, that's a pretty wide band. How would OPEC try to narrow that band?

GENZER: Yeah. And try to get prices a little more predictable. Well, it's holding an emergency meeting a week from today in Vienna. It moved that meeting up from November. And Bloomberg is quoting the oil minister of Qatar as saying that OPEC could agree to reduce oil output by a million barrels per day. Reducing output, the idea is that prices would go up because there would be less oil sloshing around. But OPEC has a hard time enforcing quotas so there's no guarantee that output would actually be reduced.

BRAND: Well, Nancy, why should we, consumers and gas buyers, why should we really care about destabilization in the oil markets? Can't we just enjoy this low gas prices?

GENZER: Right. The poor oil companies, right? In the short term, yes, enjoy the price break and take a drive to the beach or go to the mountains. But in the long term, these volatile prices could actually be bad news for consumers. As I mentioned earlier, it's hard for oil producers to plan or explore for oil when prices are so unpredictable. Lou Pugliaresi is president of the Energy Policy Research Foundation and he told me that today's volatile prices which we're enjoying could bring about higher prices in a few years.

Mr. LOU PUGLIARESI (President, Energy Policy Research Foundation): We go to another huge cycle of very low oil prices, squeezing off investments, followed by very high oil prices bringing in more investment.

BRAND: So, Nancy, any other ramifications for oil producers with these lower prices?

GENZER: Yeah. Some companies will find it harder to survive because of the low prices and that could lead to more acquisitions and mergers in the oil industry. And there's another effect, the credit crunch has caused some oil exploration projects to be mothballed because they couldn't get credit for those projects.

BRAND: Thank you, Nancy. That's Nancy Marshall-Genzer of Public Radio's Daily Business Show, Marketplace.

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