OPEC said today it would cut output by more than 500,000 barrels of oil a day by sticking closer to production quotas. OPEC is trying to stop the slide in oil prices. The cartel doesn’t want oil prices too high, either, says Dan Denning. That would force its clients to start looking in earnest for cheaper alternative and (whisper it) more environmentally friendly energy sources.

This from The Daily Reckoning:

While the financial empire burns, OPEC decides whether or not it’s going to cut production today. Lower energy prices are about the only good news to come out of falling commodity and stock prices. But OPEC producers like Venezuela and Iran want the world’s big oil cartel to cut production and put a floor under prices.

You get the feeling that OPEC doesn’t want the oil price to go too low. The U.S. Energy Information Administration forecasts an oil price of US$126 next year. OPEC probably doesn’t want the oil price to stay that high. The market, meanwhile, is sending oil down to $100. What we need is a goldilocks oil price, not too high, not too low…just right!

The reason OPEC doesn’t want the oil price to be too high is that it encourages the rapid development of the alternative energy industry. You don’t want your product to be so expensive that your customers begin looking for substitutes.

By alternative, we don’t necessarily mean wind, waves, solar, and geothermal (although they are all industries we’ve analysed with Kris Sayce in the Small Cap letter). You also have to consider unconventional hydrocarbons (coal-to-liquids) as “alternatives” to crude oil. These industries are flourishing in Australia, even if there’s no “big” oil company to buy.

Source:OPEC May Cut Oil Production