OPEC’s threat- the market answers!

Threatened with sagging oil prices, OPEC held a meeting today to decide if any additional production cuts should be made. This would be their third (?) meeting outside of their normal meetings in the last few months as oil prices have lost all their gains made in the last four years.

While OPEC tried the "shock and awe" approach, the stock market was busy preparing for a response. OPEC went first and decided to cut 2.2million barrels per DAY of oil production, its biggest reduction EVER.

"I hope we surprised you," OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. "If you’re not surprised we need to do something about it."

Crude oil immediately dropped to $40.20 a barrel after the announcement was made in a "in your face" attitude.

I’m convinced the more OPEC tries to prop up prices, the more it will harm their own interests. OPEC is helpless in this market, as we saw today. However, what OPEC is doing is setting themselves up for destruction. They’re obviously hurting for revenue, but this cut will make prices spike eventually when global markets do recover, leading to another potential disaster. OPEC is in a huge bind- they need revenue, but are doing a TERRIBLE job at trying to increase demand for oil (which SHOULD be their largest interest for long term viability).

OPEC is doing things that only benefit in the short term (and look- its not even helping!). The long term outlook for OPEC is failure.

So OPEC, how about announcing another production cut tomorrow so that oil will take another nose dive?

I don’t see a hike this week, but we’re closely monitoring that situation here. If prices become widespread under $1.55, look for a hike.

In the mean time, in your face OPEC!