OPEC did exactly what it promised in Vienna, slashing oil output by 1.5 million barrels a day, but the market shrugged off the cartel’s biggest production cut in nearly two years and crude futures fell to $63 in New York.
OPEC decided to lower supply by 1.5 million barrels a day from November, oil ministers said today at the end of a meeting at the group’s Vienna’s headquarters. The reduction will be from the existing quota for 11 members of 28.8 million barrels a day.
OPEC President and Algerian Oil Minister Chakib Khelil said at a news conference that the cut will be “100 percent effective” in stabilizing prices.
Apparently Khelil didn’t talk to the Qatari Oil Minister Abdullah bin Hamad al- Attiyah, who said,
Another cut in December is “possible,” depending on how the oil market reacts
Venezuela has been insisting that OPEC establish a target price range of $80 – $100/barrel. Iran, Venezuela and Libya are panicking, according to the NYT.
All this points to serious splits between OPEC members,
Their disagreements — both publicly and privately — may set the stage for a more contentious chapter in the organization’s history that could also mean a period of lower oil prices as producers fight over what course to take.
“OPEC member countries’ national interests are greatly misaligned,” said Antoine Halff, an oil analyst at Newedge, a brokerage firm. “Falling prices will deepen, not lessen, those divisions.”
Because the growth in global oil demand has slowed sharply in recent months, OPEC fears the world will face a huge oversupply next year. Some members, led by Iran, pushed for an aggressive cut in production. Their aim is to stop the precipitous slide in prices that risks putting a big dent in their government revenues and jeopardizes their increasingly large social spending programs.
Allies of the United States within the group, led by Saudi Arabia, have pledged to keep oil markets well supplied, as industrialized nations grapple with the worst economic crisis in decades. They have repeatedly said they do not want to add to the world’s economic woes by pushing up oil prices. After he arrived in Vienna, Mr. Naimi, the Saudi oil minister, said that oil prices should be determined by the market.
Here in the US, gasoline retail sales fell by 8 percent last week.
The Washington Post quotes Venezuelan Oil Minister Rafael Ramirez’s admission that “Demand is collapsing.”
Chavez’s attempts to turn OPEC into an overtly politically militant group have failed so far. Venezuela’s oil production has dropped by 25% since Chavez came to power. One of my commenters mentioned that Venezuela’s oil is high in sulfur and sells for less than the world oil price – this means Chavez is getting now $100 less per barrel than he was a few months ago. With the price of oil dropping, his Bolivarian empire dreams are a chimera; if oil stays low, he’ll be gone, too.
(Regular readers of this blog know that I have stated that if oil stays below $80 for an extended period of time, Chavez will be looking at real estate in a retirement community near Cannes.)
As of the writing of this post, oil is trading at $63.30
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