Cartels exist to restrict supply and increase prices. The reason why OPEC members have allocated quotas is to keep oil prices from falling and decreasing profits by an amount far greater than that which is lost from lower production. In traditional economic theory, cartels are destined to fail absent the threat of force or other high barriers to entry or change since every party has an incentive to cheat by selling above quota at the high quota-created price, destroying the market power of the quota itself. That cheating gave you $1 per gallon gas during much of the '80s and '90s. Now, we have the opposite problem (WSJ sub req'd):
Saudi Arabia, Kuwait, the United Arab Emirates and Qatar are all producing above their quotas, making up for output shortfalls in Venezuela, Iran and Indonesia, which aren't able to produce oil as it allocated to them. Even so, OPEC's output has been declining since last summer, and now is several hundred thousand barrels a day below quotas totaling 28 million barrels a day for 10 members. Iraq, the 11th cartel member, isn't part of the quota system.
We counted on OPEC members cheating, but production is so stretched right now that they aren't even capable of it. All the analysts are warning of the catastrophic effects of a patch of instability in Nigeria or Saudi Arabia, but spot prices could skyrocket due to regular supply and demand forces at this point.
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