OPEC CUTS AND INFLATION.

OPEC IS ALWAYS VERY CONSCIENCE OF INFLATION IN WESTERN COUNTRIES

CONCERNED ABOUT RECEIVING DEPRECIATING CURRENCIES FOR OIL

Yesterday OPEC, "Organization of oil exporting countries" voted unanimously to cut oil production by 4.5% or 2 million barrels a day. OPEC is made up of 15 countries who produce 44% of the worlds oil and own 81% of the worlds oil reserves. They are concerned about the declining price of crude oil and also the high inflation in the countries to which they ship oil.

Much is made that this so called cartel can damage the economic growth of other countries and can be politically motivated to assist countries in economic peril. In fact their decisions are mostly about the well being of their economies and getting a fair end price for their oil.

OPEC came into being in the 1970's when U.S. inflation reached double digits and the market price was near $3.25 a gallon. They felt that the market price was leaving them with a declining return on their oil, which to many is their number 1 source of income.

During the past administration when the U.S. became an exporter of oil and was self sufficient in oil production the world price had dropped to below $50 a barrel and at one point was below $25 a barrel. This created serious economic problems for these countries including the biggest producers, Saudi Arabia and Russia. Saudi Arabia has been the most influential country in the management of OPEC.

They have consistently cooperated with their customers to address short term economic problems, but yesterday they chose to consider their economies first. This may do with the strained relationship with the current U.S. president who thought it politically advantageous to embarrass and disdain Saudi Arabia and even called it a pariah country. Not to mention 30 years of war and destruction in the region.

There is a simple solution to the power of OPEC to influence the world price of oil. It is not threats and intimidation, but the simple act of making these vulnerable countries energy independent by putting in place incentives to increase domestic production. Problem is, the U.S. and western Europe are much too sophisticated to embrace the idea of producing more fossil fuels, when their political goals call for the elimination of all fossil fuels..