OPEC reneges, agrees to cut 530,000bpd of production

OPEC dismissed from their meeting late Tuesday night Eastern time and promptly said they had decided to cut production by over 500,000bpd.

I’m not sure how to react- first and foremost I feel that OPEC is unaware of global economic worries based on the high cost of oil. Secondly, I think they fail to realize that cutting production now will mean more demand destruction for oil (based on continued higher prices as global stockpiles fall). Are they shortsighted because oil has fallen from an all-time high? Or are their budgets getting so large they can’t afford to sell oil any cheaper?

I’ve maintained in my mind that OPEC seemingly ALWAYS makes the wrong decision at their “meetings”.

Chalk it up to another day long victory for OPEC countries… followed by continued losses in oil. OPEC is signaling that demand is dropping by cutting production- its like they’re recognizing the problem. Could this help oil’s selloff accelerate?

Pfft- so much for them being concerned that high oil prices are hurting the economy.

OPEC’s decision again makes absolutely no sense.

4 Comments

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  1. My question is for those in favor of offshore drilling:

    With tropical storms intensifying along with a greater frequency of hurricanes, won’t offshore drilling become much more risky and costly thus driving the prices up even more at the pumps?

  2. Not just off shore drilling, there are other places with oil where hurricanes wont be a factor. Offshore, onshore we just need to drill and tell opec to stuff it.

  3. So, we had a 15 cent increase in rack prices on Monday night and an 11 cent decrease on Tuesday night. What will we get for Wednesday night??? The Market has been up a little most of the day and now down a little. Ike continues to look like it will pick up strength and should hit Texas on Friday. So, I don’t really get why prices have dropped, everything is still shut down in the Gulf and the potential for damage is still there.

    There is a pretty good chance that some stations will drop back down if they didn’t get stuck with a Tuesday delivery. But, there is also a good chance that prices will go back up on Friday.

    I agree that it seems like a strange move for OPEC, at least with the election coming up and Congress coming back. The last thing that they should want, is to lose any sales from the US. High prices are just going to make the US look for better options. As a former King of Saudi Arabia once said “The stone age didn’t end because they ran out of stone.”

    I think part of the problem with OPEC is that there are Countries like Venezuela and Iran that would like to see us suffer, Countries with elected officials that are only concerned about oil profits while they are in office, and Countries like Saudi Arabia and Dubai that know that oil profits aren’t going to last forever and try to look at the best long term approach. I assume that there are a few countries that are always shifting their vote between the 3 viewpoints to determine which group wins that that.

    Randy: I’m pretty sure that the off shore drilling that people are begging for is off of California and the East Coast. Plus, the drilling shut down in the Gulf isn’t a major problem. The real problem is shutting down any or all of the 30 or so refineries along the Gulf Coast, the pipelines where they offload the tankers, and the barges that bring crude up the Mississippi River to the Midwest refineries. A storm in the Gulf can easily shut down 50%+ of the US refining capacity.

    There is tons of oil shale in the Rockies, but people hate strip mining more than they hate high gas prices.

  4. It is my understanding that, even if we did decide to drill for domestic oil, it would take years before it is ready for delivery. And even when it is delivered, the volume of oil would only represent a small percentage of our domestic use.

    “ANWR would add only 1 to 2 percent to the overall world oil supply, said Philip Budzig, who authored the report for the EIA. The report concluded drilling there would subtract anywhere from 41 cents to $1.44 per barrel of crude oil around 2025. That translates to a savings of just a couple pennies per gallon at the pump. Again, in 2025.”
    – (Energy Information Administration (EIA), the independent statistical and analytical agency within the U.S. Department of Energy)

    Do we have any domestic reserves larger than ANWR?

    I believe that this same initiative (by those enthusiasts who want to drill) can be put into improving domestic fuel economies over the same period of time. It’s inevitable that we go this way eventually. Why not as soon as we can?

    Either we produce x% more oil locally by building oil infrastructure that will require maintenance and will be subject to Mother Nature’s fury, or we reduce our consumption by the same x%. The first way leads us into needing more oil down the road. The other way leads us to needing less oil down the road.

    I would rather encourage and reward innovation rather than encourage and reward oil companies and oil lords. I can only vote with my own dollars and ballots. Many of my dollars have already voted for a hybrid. I get a real 52 miles per gallon on average. I buy nine gallons 2 or 3 times a month. I am not tapped out by $4 gasoline. I wish everyone could say that.

    A lot of people are boosting their personal economy already by choosing more economic vehicles. The nation should emulate its people. Choose economy over quantity.

    Had the Domestic Three auto makers been thinking this way, our laughable Michigan economy might not be so bad off today.

    What will the next generation say that WE should have done differently?

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