Has OPEC met its match?

Published 5:54 pm Friday, January 2, 2009

It appears OPEC has at last met its match: A bad world economy.

In 1973 OPEC triggered high inflation and drastic price jumps at the pump, (well, drastic for the 1970s…prices jumped from .38 cents a gallon to .55 cents a gallon. However I’m sure those price increases had about the same emotional effect as the four bucks we were forking out in July.)

So in December 2008 the ruling cartel that accounts for over two-thirds of the world’s oil announced drastic production cuts, trying to halt the dramatic slide in crude oil prices on Wall Street. Oil was trading for $37 on New Year’s Eve.

OPEC – which believes the fair price for a barrel of oil is $75 to $80 – has said it will take 2.2 million barrels of oil off the world market starting in January.

The market’s reaction?

Whatever.

A top trader in Chicago told CNNMoney.com that the market is focused more on the present state of the economy (its outlook is bleak, if you didn’t know), then what OPEC does.

Some experts predict we could be headed to $1 per gallon in 2009, a price I thought I would never see again in my lifetime. The last time gas sold for under $1 were when prices averaged 99 cents way back in March 1999.

Any plunge in prices is temporary at best. In the long run – once the economy recovers – oil is going to head back up again. Energy prices are going to remain volatile for some time.

As I’m writing this on Friday, oil just jumped to $46 a barrel because traders are anxious over Israel’s fighting with Hamas. The conflict is sure to evolve into a ground war in the next few days.

More fighting could lead to a loss of supply.

And if war spills over into other Arab countries, all bets are off.

That might be just enough to push the U.S. economy off the dangerously unstable perch it’s currently sitting on.