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OPEC Cuts Production to "Stabilize" Prices |
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by Joe Futrelle
Email: futrelle (nospam) shout.net (verified) |
10 Dec 2004
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OPEC has just agreed to cut production by 1 million barrels a day, or almost 3.5%, in order to "stabilize" oil prices, which have fallen almost 25% since their record high in October, and are still very much higher even in inflation-adjusted terms than they have been for decades.
It is difficult not to be alarmed by OPEC's desire to "stabilize" prices when they are this high. It means that we can expect prices never to return to pre-2004 levels.
Given that airlines have claimed that they will not be profitable until oil returns to $35 a barrel, it appears that airlines as we know them will never be profitable, and the industry will need to be restructured or collapse.
If a 3.5% decrease in production can drive prices up with such significant effects, imagine what will happen when global production begins to decline as a result of depleted reserves. This so-called "peak oil" event may occur within a decade.
Watch what happens to airlines. They may be the first industry to be brought down by their dependence on low oil prices. When the canaries start dying, it's time to get the hell out of the mine. Which in the case of oil dependence means massive restructuring of the economy around domestic, renewable energy production. |
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