With oil prices reaching lows near $40 a barrel, and financial heavyweights like Merrill Lynch predicting that the per-barrel price could fall as much as another $15, OPEC officials have announced plans to reduce oil production. The proposed 2 million barrel cut in daily production of crude will be the largest one-time reduction in the organization’s history.

OPEC hopes this reduction in supply will help to counteract the downward pressure declining global demand has exerted upon prices. Due to world-wide economic problems, demand for oil is expected to fall by another 700 thousand barrels a day this year, and as much as 1.4 million barrels a day over the course of 2009. OPEC leaders feel that the announcement of a significant supply reduction will “shock the market” into putting a floor under crude prices.

In taking these actions, OPEC has set itself up to perform a delicate balancing act. On one hand, there is the tactical goal of increasing profit margins by decreasing supply, and bolstering the price, of crude. On the other is the strategic incentive to keep the price of oil low enough to stimulate economic recovery for its most valued, and most oil-addicted customers (USA, Europe, and China). John Farrell offers an interesting opinion on the situation in a post to US News & World Report’s website.

He suggests that, in America at least, this proposed price rebound will hurt OPEC in the long-run. Farrell comments on the hampering effects declining oil prices could possibly have had on President-elect Obama’s green technology initiatives and writes, “Think about it. They had us where they wanted us—falling in love again with cheap oil. And now, greedy fools that they are, they re-fuel our resolve.” He feels strongly that a rebound in oil prices could very well be the final dose of encouragement the Untied States needs to kick its oil addiction once and for all. I agree.

Not only do I agree with Mr. Farrell, but I also would love to see the USA lead the collapse of global addiction to Middle Eastern oil. I often feel that the U.S. has lost its competitive advantage in many global (and even domestic) markets. We’ve gotten fat, happy, and lazy in our gas-guzzling years of grandeur and, as a result, haven’t been all that innovative. I believe that these tumultuous times offer the United States an opportunity to blaze a new trail down the vast frontier of sustainable energy. Not only could American innovation and investment in green technology provide economic prosperity to America, but it would also help to ease oil-related tension in the Middle East and aid in the fight against global warming.
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Steve Tatum

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