OPEC may trump deflation (Update 12:28: OPEC raises cuts to 4.2 million barrels)

Posted Dec 17th 2008 9:05AM by Douglas McIntyre
Filed under: Oil, Recession

With the CPI dropping and the cost of fuel moving down 17% last month, analysts are concerned that deflation will start to undermine the ability of businesses to get profitable sales and for the housing market to recover its ability to stage a price recovery.

OPEC may change all of that, but is it for the better or worse?

The concerns about deflation are growing rapidly. According to Reuters, "If we did nothing on the fiscal stimulus side, it would be a much bigger risk of getting into a full-fledged deflationary spiral," said Nigel Ga ult, director of U.S. economic research at Global Insight.

Since the cost of oil and gas is so critical to consumer and business prices in the U.S., the new OPEC cut of 4.2 million barrels a day from August levels could drive gas back toward $3 a gallon, especially if the cut moves crude back toward $80. Some OPEC members like Iran need prices at that level to balance national budgets. Analysts say that today's cut may not be enough because the recession is curtailing demand. That fails to acknowledge the fact that the cartel could cut again early next year.

If gas goes up, it may make the consumer spending aspect of the recession worse, but it would certainly help move the economy away from deflation.

Mixed blessings.

[Editors note: the post has been updated to reflect recent news.]

Douglas A. McIntyre is an editor at 247wall st.com.

Tags: deflation, inthenews, oil, OPEC

Print this

Reader Comments (Page 1 of 1)

12-17-2008 @ 9:59AM

EMIL J KOVACH JR said...

The Artificially High Price, CRUDE OIL Attained, Raised the price Of Food Stuffs, In The 3rd World, The Cost Of Energy To All Manufactures, And Negatively Balanced, And Em burdened The Developing Economies, Of The World.
The Cost of Fuel To the 3rd World, was A great Hardship, and EXCESSIVE PROFITS Invited ADVENTURIZM By Others, And
Allowed Many a PERSONAL POLITICAL AGENDA, That De-Stabilized The World, As A Community.
There Was NO POSITIVE EFFECT, To Those, That Hurt The Most.
It Was a Situation Of SPECULATION, That Was Spreading Into ALL the Financial Markets.
It Is A Situation OPEC Was Not Proud Of, Or Will Let Happen, Again.
SAUDI ARABIA Is Committed To Being A STABILIZING FACTOR, To Both The Crude Oil Market, And OPEC.
A Fair Market Price, For Crude, Is The Goal, And Stability In Economic Community, Is Needed. And Will Continue To Be A Goal Of SAUDI ARABIA.
EMIL J KOVACH JR

12-17-2008 @ 12:09PM

pfinder said...

I can not grasp the idea that raising gas prices, a necessay part of how most of us get to our jobs, will in any way benefit the majority of people who are not making enough money to pay their mortage's much less feed their families and pay for medical coverage. The swing to a business beneficial government did nothing more than feed the greedy. Unions are powerless, thanks to Reganism, leaving the working man to face the powerful with prayers and hope. It is hard to watch the loss of jobs that has effected so many especially my family and friends. My own daughter lost her job and now her husband. He was making very good money and though their faith is strong the economy isn't. It seems to me the high gas prices was a means to "declaw the Lion". They might not have won the battle but if this continues they will defeat their enemy without firing a shot. It seems to me the fuel costs had precipitated the economic collapse. I have a question. President Bush said that he would release the fuel reserves of the Unitied States to lower gas prices, is that what happened?

12-17-2008 @ 3:06PM

norman said...

Good let the price sink-and let the arabs drink their precious oil while we make cars that get more mileage, use alternatives (such as the sugar cane they use in brazil-little pollution and odor) and stop ending our dollars to those who want to destroy us and our way of life.