Crude oil prices certainly responded to OPEC's announcement that it would not, contrary to expectations, raise output levels. Oil traded in New York at $101.77 (U.S.) a barrel, up $2.68 and marking its biggest one-day jump in more than a week.
Apparently, the market believes that current output levels are insufficient to quench the world's thirst for oil. Therefore, strong demand amid steady supply will send prices higher - yes, even as some OPEC members fret over oil's impact on rising inflation levels in many parts of the world.
However, James Hamilton, the professor of economics at the University of California, San Diego, and a blogger at Econbrowser, noted that what OPEC says is one thing. But what it does is entirely another - and so any announcement of production quotas should be greeted with some skepticism.
"At best the statements issued from these meetings provide a noisy signal of the intentions of some OPEC members," he said on his blog. "But if you're interested in what OPEC members really plan to produce, my view is that actions speak louder than words."
He has a few compelling graphs to illustrate his case. Prior to 2007, for example, production levels from Saudi Arabia were often well above the country's quota. After 2007, OPEC stopped publishing single-country production allocations. After 2007, though, production levels and quotas for OPEC members as a group similarly strayed - with production consistently coming in higher than the overall quota.
"If OPEC were functioning as a traditional cartel, what would emerge from these meetings would be agreements on production quotas to which each country was going to adhere," Mr. Hamilton said. "But this is clearly not the case."
Jeff Rubin, author of Why Your World Is About To Get A Whole Lot Smaller and former chief economist at CIBC World Markets, also made disparaging remarks about the effectiveness of the OPEC quota - but he focused on the fact that there are other significant oil producers out there.
"Russia, the one country actually able of producing 10 million barrels a day, isn't even at the table at the OPEC meeting," he said on his blog. "And it's been Russia that has been adding the most to world exports over the better part of the last decade as OPEC exports have faltered."
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