The Price Of Oil Will Rise
December 18, 2008 The amount of humiliation among OPEC oil ministers must be agonizing. Every time the cartel cuts supply, the price of crude drops like a rock. But, the ministers will not be denied their pound of flesh. The most recent cut in production was either 4.2 million barrels a day or 2.2 million, depending on what month is considered as the starting point for the calculation. Either way, the supply from OPEC should be down about 10% from the middle of this year to the early part of 2010. The enemy of these price cuts has been rapidly falling demand in recession-riddled economies like the ones in the US, EU, and Japan. Even China is using less oil. Crude prices dropped after the most recent OPEC cut announcement because America suddenly determined it had more supply than most analysts thought. The great thing about being a supplier is that cutting never ends. Cut once without effect and then cut twice. Cut three or four times. At some point the cuts get supply below demand and prices start to move north. OPEC has not be very good at anticipating supply contraction. The recession came on too fast. But, the one certain thing about the cartel is the its members are feeling poor and they will press for cuts until oil gets above $70. The national budgets of Nigeria, Iran, and Venezuela depend on it. Saudi Arabia cannot even build its new King Abdullah Economic City. The man is an emperor after all. Russia in not in OPEC, but it might as well be. Its stock market has fallen 85%, to a large extent because oil revenue is falling. Vladamir Putin, the troll who used to run the KGB, could be out of a job as the head of the Communist country. Too much is at stake for oil prices to keep dropping, so they won't be any more. http://www.247wallst.com/2008/12/the-price-of-oi.html --------------------------------------------------------------------------------- Looking For Oil Back At $70 ? --------------------------------------------------------------------------------- OPEC wants to see oil prices higher, much higher. Some of its member nations are running huge national deficits now that the price of crude has gone from $147 last summer to under $50. Several experts think it could go lower due to falling global demand. Even the Chinese are using less oil. Americans are dreaming of $40 crude and $1.50 gas. OPEC members of dreaming of the Yankees sitting in their cars in long lines which snake for miles while they wait to buy a gallon of gas for $5. Someone has to be wrong about what is going to happen to oil prices. Every day it looks a bit more like OPEC will have its way. Members of the cartel are taking about a two million barrel a day production cut. No one knows if that is enough to arrest the rapid drop in crude prices. But, if OPEC can take exports down once, it can take them down twice or even a third time. The falling yield from a barrel of oil is also causing US companies to do less oil exploration and drilling. If this helps cut supply further, OPEC gets a hand in its effort to increase prices. According to The Wall Street Journal, the number of active drilling rigs could drop 50% from this last September to late 2009. Consuming nations ought to pray that crude price do go up, at least some. There is a level, and that level might be $60 or $70, where OPEC does not need to make economic war on the US and other consuming nations and drillers have an incentive to drill. Oil is too cheap now, and, by being too cheap, it risks causing the kinds of swings in price that the stock market is seeing by trying to escape the shadow of supply and demand. http://www.247wallst.com/2008/12/looking-for-oil.html
