OPEC Will Cut Oil Production

[BIG PIZZLE]

and russia and azerbaijan too. At least that's what they all say. I havent seen prices this low since 2002.

http://www.rferl.org/content/OPEC_Agrees_To_Cut_Oil_Production_As_Do_Russia_Aze rbaijan/1360816.html


OPEC Agrees To Cut Oil Production, As Do Russia, Azerbaijan

http://gdb.rferl.org/104611C9-EF91-4EB3-9CC0-90451C0B4E6D_w203_s.jpg (http://gdb.rferl.org/104611C9-EF91-4EB3-9CC0-90451C0B4E6D_mw800_mh600.jpg)


December 17, 2008


(RFE/RL) -- The Organization Of Petroleum Exporting Countries (OPEC) has announced a significant cut in oil production in a bid to lift falling crude prices.

OPEC and non-OPEC oil exporters have taken action that could remove up to 2.6 million barrels of oil from the market every day in an attempt to boost prices and, thus, the incomes of producers.

Saudi Arabia's oil minister, Ali al-Naimi, says OPEC -- whose 12 member states together provide 40 percent of world oil supplies -- has agreed to cut production by 2 million barrels a day. It is the largest-ever production cut by OPEC, equivalent to about 7 percent of its current output quota of 27.3 million barrels a day:

"You know that supply is still somewhat in excess because of the financial situation," al-Naimi said. "Inventories are also higher than normal."

OPEC ministers called the meeting to halt a steady price decline of more than $100 since July when oil peaked at about $147 per barrel.

The falling oil price is linked to global financial sector turmoil, brought on the by U.S. subprime-mortgage crisis, and its spread to the broader economy. That's because the demand for oil in recession-hit industrialized countries has fallen.

Just before the talks began, two non-OPEC exporters, Russia and Azerbaijan, announced that they were ready to cut their own oil production by about 300,000 barrels a day each.

OPEC officials had appealed earlier to nonmember producers for help to stabilize the market. OPEC Secretary-General Abdalla Salem el-Badri earlier said he wanted to see a cut of 500,000-600,000 barrels a day by nonmembers.

Analysts say OPEC's ability to influence global oil prices ultimately depends on whether the market believes the group will actually limit its production.

OPEC's effectiveness is contingent upon members obeying quota levels. When prices and revenues are falling, there is a particular need for discipline. But some producers cheat at the expense of others by failing to implement production cuts, thereby increasing their revenues.

But analysts warn that whatever steps are taken by OPEC to reduce the oil supply and shore up prices ultimately could cause demand to fall further. That means decision to spark a price rise could turn out to be counter to the best interests of the cartel's members.

[Archangel]

Fuck them. We need affordable petrol more than Sheikh Abdul needs another gold plated Rolls-Royce. Or oligarch Dmitri another yacht.

[Phil Theehor]

This might be a little off-topic, but it is an omission in this article. In fact, it never gets mentioned when people discuss the factors responsible for the precipitous drop in oil prices.

One of the factors of is actually a beautiful thing. And that's the fact that the speculators who were taking gaudy profits and driving up prices have taken such an awful rectal buggering over the last few months that nobody is betting long on oil (or if they are, they are hedging to the point that it’s not driving prices).

And that's something that OPEC can't control. They'll cut production and prices will ease back up, but they won't be artificially buoyed like before because many of the speculators are too busy trying to stem their anal bleeding to push prices (at least for a while. My working theory is that our markets have about a five to seven year memory).

Because I am a full-fledged believer in free markets, you wouldn't expect me to vilify speculators. And I'm not. Trading futures (and other derivatives) is a useful and proper hedging tool. But, when you are engaging in straight "flipping", you aren't adding any value to the process. You are merely taking profit in exchange for assuming risk. And if you want to make your money by gambling instead of contributing, I say it is your right to do so.

It's just nice to see that the risk is real. It warms my heart to see the market taking corrective action on its malefactors, all by itself.

[Nature's Folly]

Fuck opec! Oh Boo Hoo they aren't making enough. They need to go suck a dick.

[Hanover Fist]

There is a big difference between agreeing to a production cut and having all the involved countries actually follow through with the production cut. While there are a few countries that can cut production substantially and not have to worry about significant economic impacts i.e. Saudi Arabia, UAE, etc... There are the majority like Nigeria that are absolutely 100% dependent on as much oil revenue as they can get. Then there are the remainder such as Venezuela that while not exclusively dependent on the oil revenue have no problem about lying about cuts while continuing to produce the exact same amount as before or even in some cases increasing production to try and take advantage of the few countries that actually do lower quotas.
Almost every cut agreed to by OPEC has mostly failed because the countries no longer trust each other to abide by what they agree to. There is greed, corruption and simple necessity that drive the amounts they produce, cartel or not. It usually becomes a cut in production solely by Saudi Arabia with the others just giving lip service or token cuts.

[Infotainment]

This might be a little off-topic, but it is an omission in this article. In fact, it never gets mentioned when people discuss the factors responsible for the precipitous drop in oil prices.

One of the factors of is actually a beautiful thing. And that's the fact that the speculators who were taking gaudy profits and driving up prices have taken such an awful rectal buggering over the last few months that nobody is betting long on oil (or if they are, they are hedging to the point that it’s not driving prices).

And that's something that OPEC can't control. They'll cut production and prices will ease back up, but they won't be artificially buoyed like before because many of the speculators are too busy trying to stem their anal bleeding to push prices (at least for a while. My working theory is that our markets have about a five to seven year memory).

Because I am a full-fledged believer in free markets, you wouldn't expect me to vilify speculators. And I'm not. Trading futures (and other derivatives) is a useful and proper hedging tool. But, when you are engaging in straight "flipping", you aren't adding any value to the process. You are merely taking profit in exchange for assuming risk. And if you want to make your money by gambling instead of contributing, I say it is your right to do so.

It's just nice to see that the risk is real. It warms my heart to see the market taking corrective action on its malefactors, all by itself.


Couple of things I want to point out here. First, speculators weren't driving the prices up. People were hedging their money on oil to offset loses on currency exchanges. Also, when you are doing currency hedging you usually pull out at the end of the trading day not ride long term. Second, the production cut won't do shit because they are still producing more barrels of oil than are being used everyday. At the peak the Mid-East factories were running around 96% (meaning they were producing 96% of their theoretical peak per day) and still running a slight bit behind demand which was driving prices up to push down demand. Also, a third and very significant element that no one is talking about is subsidized oil. A lot of these third world countries (Mexico, China, and India) were paying down the prices of oil in their countries which caused high demands by the consumers of those countries. I believe China and India both scaled back the government paydown on oil which caused demand to falter in those countries. From everything I read, the third factor is the least talked about but one of the most important factors in the drop of oil.

[Archangel]

I'm pretty sure that China would take umbrage at being called a third world country.

[Claydon]

China takes the position that it is a third world/developing country and hence need not conform to the ideals of kyoto.

[Archangel]

I'm pretty sure China is classified as emerging, as are Mexico and India, by the way. There is a rather big difference between that and fucking Somalia or Afghanistan.

[Debo]

This might be a little off-topic, but it is an omission in this article. In fact, it never gets mentioned when people discuss the factors responsible for the precipitous drop in oil prices.

One of the factors of is actually a beautiful thing. And that's the fact that the speculators who were taking gaudy profits and driving up prices have taken such an awful rectal buggering over the last few months that nobody is betting long on oil (or if they are, they are hedging to the point that it’s not driving prices).

And that's something that OPEC can't control. They'll cut production and prices will ease back up, but they won't be artificially buoyed like before because many of the speculators are too busy trying to stem their anal bleeding to push prices (at least for a while. My working theory is that our markets have about a five to seven year memory).

Because I am a full-fledged believer in free markets, you wouldn't expect me to vilify speculators. And I'm not. Trading futures (and other derivatives) is a useful and proper hedging tool. But, when you are engaging in straight "flipping", you aren't adding any value to the process. You are merely taking profit in exchange for assuming risk. And if you want to make your money by gambling instead of contributing, I say it is your right to do so.

It's just nice to see that the risk is real. It warms my heart to see the market taking corrective action on its malefactors, all by itself.


It has more to do with the short lived rally in the USD than it does speculators. Remember that there are two sides to every trade.

[Claydon]

I'm pretty sure China is classified as emerging, as are Mexico and India, by the way. There is a rather big difference between that and fucking Somalia or Afghanistan.

Silly arch, islam has made those countries into beautiful paradises of commerce, free enterprise, and free thinking.

[Phil Theehor]

It has more to do with the short lived rally in the USD than it does speculators. Remember that there are two sides to every trade.

True. Fair point.

However, the run up to the apex was fueled partly by speculation. My point is that when the oil market rebounds (and it will), it shouldn't have the speculation pushing it with such force. Even with an economic rebound, oil prices shouldn't snap back to their peak levels for a while.

[Phil Theehor]

Couple of things I want to point out here. First, speculators weren't driving the prices up. People were hedging their money on oil to offset loses on currency exchanges. Also, when you are doing currency hedging you usually pull out at the end of the trading day not ride long term. Second, the production cut won't do shit because they are still producing more barrels of oil than are being used everyday. At the peak the Mid-East factories were running around 96% (meaning they were producing 96% of their theoretical peak per day) and still running a slight bit behind demand which was driving prices up to push down demand. Also, a third and very significant element that no one is talking about is subsidized oil. A lot of these third world countries (Mexico, China, and India) were paying down the prices of oil in their countries which caused high demands by the consumers of those countries. I believe China and India both scaled back the government paydown on oil which caused demand to falter in those countries. From everything I read, the third factor is the least talked about but one of the most important factors in the drop of oil.

True, to an extent. As I had mentioned, oil bets can be part of a hedging strategy. What you mention is a hedging strategy-- not straight speculation.

You may very well know more about financial instruments than I do, so I won't try to argue nuances, but will stick to broader economic truths.

It is silly to say that there was not lots of money every day betting straight up on oil prices going up, which if not a self-fulfilling bet, certainly fueled the run up.

I will admit that we haven't seen the big losers come forward yet. When the oil market hit a slight correction in September, 2006, it was a few months before the spotlight was shone on the big losers (Amaranth comes to mind as a spectacular failure). The failure of such funds (or firms) is not yet public because it takes a few months for them to crash after the beating.

And to say that there was no speculation effect on prices at the pump is silly. If massive profits are siphoned out of the rig to gas pump process, obviously it is the person at the end of the process who ultimately pays for those profits. And please don't mistake this for idiotic populist outrage (idiotic perhaps, but neither populist nor outraged). I understand the necessity of commodity markets-- I just don't want them a sure bet.

[Infotainment]

It has more to do with the short lived rally in the USD than it does speculators. Remember that there are two sides to every trade.

That's exactly what I said only you said it way more clear than me.

[Claydon]

It has more to do with the short lived rally in the USD than it does speculators. Remember that there are two sides to every trade.


You believe people will start dumping US securities whereby causing the dollar to plummet? I saw that the dollar took a header on Friday.

[taters]

The broader picture of this seems to lean to the thought that our (the US) blood is in the water, and our weakness (broke, near bankrupt, lacking international respect and engaged in two wars and occupations) is obvious.

OPEC is utilizing their usual greedassery, but Russia is tugging the world world rope to give themselves more leverage and respect in the world atmosphere.

[Infotainment]

You believe people will start dumping US securities whereby causing the dollar to plummet? I saw that the dollar took a header on Friday.

It's my understanding that the value of the dollar to other currencies has more to do with international importing and exporting than it does with what the securities market is doing.

The broader picture of this seems to lean to the thought that our (the US) blood is in the water, and our weakness (broke, near bankrupt, lacking international respect and engaged in two wars and occupations) is obvious.

OPEC is utilizing their usual greedassery, but Russia is tugging the world world rope to give themselves more leverage and respect in the world atmosphere.

I don't see how you could come to either of these conclusions. In my opinion, Russia needs high priced oil because it's their main export. Also, the Russian oil companies are taking out huge government loans because they can't make a profit in this current environment.

http://www.theglobeandmail.com/servlet/story/RTGAM.20081222.woxfordanalytica1222/BNStory/energy/home

It has nothing to do with them jockeying for world power, it has everything to do with them trying to stay a float and avoid an economic landslide.