Because the OPEC cartel provides about 40% of the world’s crude oil, it has been able to control the crude oil price. Its members meet and set the amount of crude they will produce for sale opposite the forecast world demand. They can reduce or increase production to raise or lower prices. Other major crude producers outside of OPEC have been able to sell all their crude oil but acting independently are unable to displace OPEC’s role as the selling price arbiter. As you would expect, OPEC wants the price to be high but recognizes that if they set it too high, demand will drop and competitors will be encouraged to prospect for more crude. Within OPEC, the members have their own issues that make setting the production levels and thus the price, not easy. However, Saudi Arabia, currently the world’s largest producer of crude oil, is said to be the primary voice in this process. When the OPEC members meet, as they did on May 31st, to set the production level/price, one big factor was how much of their government’s budget is derived from the oil revenues. And what is the price of crude oil that makes that budget whole? The graph below, from the American Interest’s posting “OPEC Sweats: How Low Can Oil Prices Go?” illustrates the price needed to balance their government’s budget:
Climate Change Sanity 