OPEC slashes production; crude continues to tumble

OPEC slashes production; crude continues to tumble

ap.google.com

VIENNA, Austria (AP) — OPEC said at an emergency meeting Friday that it will slash oil production by 1.5 million barrels to stem the "dramatic collapse" of oil prices, but crude prices plunged 5 percent anyway as financial markets spiraled downward across the globe.

Demand for crude has evaporated and the supply levers held by the Organization of Petroleum Exporting Countries appear to have little influence in the current economic climate.

Iran and Venezuela pushed for a cut of 2 million barrels a day, but there were concerns among other OPEC members that a more severe production cut would exacerbate a deteriorating economic crisis and further destroy demand.

OPEC officials, however, signaled they were prepared to slice deeper quickly if crude continues its freefall.

(visit the link for the full news article)

Not sure why this isn't front page news. Gas is finally dropping to respectable levels and OPEC is going to slow production to drive prices back up.

Even worse, I had to dig to find this story. It wasn't on the front page of any news sites I looked at.

CNN isn't reporting it at all:
CNN

I heard some saying that if gas prices drop, the economy will slump. What!?! High gas prices have been a chalice around our economy's neck for years now.

This is outrageous and clearly OPEC training us to accept high prices.

ap.google.com
(visit the link for the full news article)

reply to post by Sublime620


You think the election might have something to do with their lack of reporting? Nah, couldn't be.

Now that oil has fallen $80/barrel, gasoline is dropping $.5-.10 per day on the exchanges and the dollar is soaring vs most foreign currencies...not a peep from the media. Quite a contrast from the daily doom and gloom predictions of 2-3 months ago, at least on those two fronts, don't you think? I even saw an article a day or two ago suggesting that the rising dollar was a bad thing.

Can't say I'm surprised. To say the media is in the tank is the understatement of the century.

Originally posted by Sublime620


I heard some saying that if gas prices drop, the economy will slump. What!?! High gas prices have been a chalice around our economy's neck for years now.

I agree with everything you've said but with respect to the above, and as I've posted elsewhere, lower prices aren't ALWAYS great news. Lower prices are great news to stave off competition and level the playing field.

In our climate though, it seems that the lower prices could be signalling something that is somewhat horrific; deflation. If that is the case, then assuredly this is further eroding an already shaky economical outlook.

AB1

reply to post by vor78


Yeah, similar to how it was reported that the fall of gas prices is bad. Rigggght. You mean the prices that have crippled our shipping industries, or any other industry that requires some form of driving (all of them).

Looks like so far its backfriing:

AP
Hardline OPEC members Iran, Venezuela pushed for big cuts in oil production to fuel sagging economies -- they got less than asked for, and a funny thing happened to prices.


www.foxnews.com...



[edit on 24-10-2008 by princeofpeace]

reply to post by princeofpeace


Surplus drops prices. Cutting supply will raise the price back up.

reply to post by Sublime620


Yep. I can understand worries about deflation to a degree, but when the world's economy, not just that of the US, is ultimately based around oil, collapsing prices are generally going to be a net positive. It certainly has been for me and my family.

Myself, I'm not going to get too concerned as long as the dollar continues to strengthen and gold/silver/oil continue falling. It looks like the popping of a speculative/inflationary bubble to me.

You see my link above? So far it hasnt...its had the opposite effect.

Lower demand will also drive prices down despite the cut.

reply to post by vor78


And thank god for that (It looks like the popping of a speculative/inflationary bubble to me.)

reply to post by princeofpeace


They haven't made the cut yet.

But they made the announcement and oil prices are driven by speculation. That is the kicker.

I love this quote from the article:

OPEC President Chakib Khelil said OPEC was ready to convene another emergency session before its next planned gathering in December in Algeria "if there are further decisions that have to be made.

Good thing they called an emergency meeting. Wouldn't want consumers paying a fair price for oil. Better call an "emergency" meeting.

reply to post by princeofpeace


It may not have the desired effect anyway. Lets not forget the example of the early/mid 80s. OPEC was pretty much powerless to stop the collapse of world oil prices as a global recession finally resulted from the high oil prices of the prior 10-15 years.

Cutting supply only works to stabilize prices if the demand curve stays static. It isn't. The decline in demand due to global recession is likely to offset the production cuts. Prices will probably continue to slide.

Also, consider that the strengthening of the dollar is applying significant downward pressure on oil prices outside of the supply/demand situation.

[edit on 24-10-2008 by vor78]

reply to post by vor78


Yeah but demand on oil can only cut so much. It's fairly inelastic. How bad could it really affect them?

It's just hard for me to picture them facing a real challenge like falling demand like real companies do.

reply to post by vor78


Demand will be lower when people have to..

sell their cars to pay the mortgage,
don't have a job to drive to,
don't have money to take the car to the shops
can't afford to go for pleasure drives.

There's plenty of alternative energy developments out there.
Time to start putting some into practice methinks.

Cut them off totally and make it worthless.

Yes so far its much worse off for OPEC than the rest of the world. That doesnt mean its a good thing though...the reason why oil is down is because the world ecoonimes SUCK!!

So there si the question: You want a crappy economy and cheap oil? or a Strong expanding economy and expensive oil? The latter is what benefits both sides...the former doesnt.

Usually when OPEC announces a production quota reduction, none of the members adhere to the quota.

They all believe that the other countries should stick to the quota but that they are exempt and can continue to pump oil and sell as much as the market will bear.

OPEC played a major part in the world financial crisis and they will make less money as a result.

If you are too greedy it hurts everyone.

reply to post by Sublime620


The bottom won't fall out of the demand side, but its enough to make a difference and help continue the downward momentum. Combine the lesser global demand with downward pressure from the dollar and a collapse of market speculation, and it all adds up to the perfect storm.

reply to post by Wildbob77


Yeah, there's that whole issue as well. Speaking of the 80s, part of the reason that OPEC couldn't stop the price collapse was because several members were cheating their output quotas. Of course, as their revenue stream dries up as prices fall, each member has an incentive to try to sneak in a few more barrels. Of course, that ultimately hurts all of them, but its usually what happens. So that'll probably repeat itself here as well.

[edit on 24-10-2008 by vor78]

"Demand for crude has evaporated"

it was a hoax to begin with most of the demand was the refineries over ordering oil.
refineries were ordering 200,000 barrels a month for a refinery that could only process 100,000 then only taking 100,000 barrels to process.
this made it appear to be a shortage and the price went up because there APPEARED to be a demand,
orders and sales are two different animals.

if you are a oil company and you buy part of the oil for your refinery.
you option 200,000 barrels of oil. just in case something happens
the wells pump 100,000 barrels and ship to the refinery 100,000 barrels for that month.
but you are covered because you have a option if something HAD happened.

then you add in investors in the oil futures market that think you were short on the oil you over-optioned and they bid the price up because they think there is a demand because you over-optioned.

now that the price has went up and you the oil company think there may be a shortage coming
so you raise you over-option to 220,000 barrels just in case.
and the investor see that you raise and think you are even shorter in supplies and raise the price even more.

now a hurricane knocks out you refinery and you can not refine the oil in your storage tanks. so you cut your option for oil till you repair the refinery.

plus because the price got so high the public cut back on driving. so the refinery has a problem selling gas.

the investors see this as a glut of oil and start dropping the price of oil.

you at the refinery see what you believe is a glut of oil on the market and cut your option for the next few months.

now the investors see your cut and they cut the prices even more.

on and on the marry go round goes till something else happens.

supply and demand died years ago.

now its all in the minds of people in the market.

there was NO demand and there is no GLUT.
all there is are stupid people trying to read each other minds and getting it wrong,