When oil prices rise, it seems like OPEC is in control of oil markets. When prices fall, it does not. Today, OPEC announced a 2 million barrel a day cut in production beginning in January of the new year and oil prices are falling. If other variables affecting the oil market do not change, prices rise as supply falls.
But other variables are changing. As the economy slides deeper into recession, businesses and households demand less oil based products. The Energy Information Administration announcement a 1.3 million barrel increase in gasoline stocks, and a 2.9 billion barrel increase in distillate stocks that are used to make refined oil products. The same buildup of stocks is probably occurring world over. As demand decreases, prices fall.
OPEC's ability to cut production is also suspect, particularly as prices fall. The cartel suffers from the prisoners' dilemma problem. OPEC members earn higher profits if they all cut production. If one country cheats by not cutting production, and the rest do not, the cheating country benefits at the expense of the others. If they all cheat, oil prices and profits continue to fall.
Oil trades apparently believe that oil stocks demand is likely to fall faster than oil supply. I hope they are right.
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