Global recession, not OPEC, setting oil prices

School of Management finance Professor Mark T. Williams, an expert on energy risk management, says the global recession has overtaken the ability of the Organization of Petroleum Exporting Countries to set oil prices, which will be reflected in next week’s OPEC meeting in Vienna.

“The global recession has put significant downward pressure on oil demand, forcing OPEC to be a price taker instead of a price setter.  Complicating this is the fact that OPEC countries continue to rely heavily on oil revenue to support national budgets, so the recent free-fall in prices has pushed them into recessions themselves.

“OPEC countries have to jump-start their home economies and need more revenue to implement stimulus-type programs.  When OPEC meets in Vienna on March 15, it is clear that these countries will make further cuts in daily oil-production targets.  Equally clear is that this time the recession-driven market, not OPEC, is firmly in charge.

“Middle East OPEC countries influenced the last three major recessions – starting in 1973, in 1983, and today.  Given the significance of oil in the global economy, it is nice to see that market forces – not OPEC – are finally determining this commodity’s appropriate price.”

Contact Mark T. Williams, 617-358-2789, williams@bu.edu 

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