The Organization of Petroleum Exporting Countries (OPEC) is going to ring in the New Year by cutting oil output some 2.2 million barrels a day next month. Guess the cartel's members got spoiled by the $100+ per barrel price they enjoyed for a good chunk of the year.
OPEC has announced cuts before. Back in September, remember, the cartel decided to cut production in an attempt to keep oil at $100. OPEC was really in a panic by October, when prices fell below $70 for the first time in 14 months. Oil is now close to $40, and folks are getting change back from a $20 when filling up the car. Big Oil doesn't like that!
From one of today's reports: Oil prices have fallen rapidly in recent months due to "the repercussions of the financial crisis," said OPEC's President Chakib Khelil. "We are in a very deteriorating environment," he said.
All told, the new cuts will bring oil production down a total of 4.2 million barrels per day from September.
OPEC's goal, according to Khelil is to have oil "at least" in the $70-80 range. If that doesn't happen, more cuts will come. Here's his quote from the CNN article: "If you are not surprised [by the cuts], then we have to do something about it," he said.
Should the global economy begin to improve, oil demand may increase...and combined with OPEC's cutbacks, prices could take a serious jump (oil is down today, despite the cartel's announcement). Certainly nobody believes we've seen the last of $100 oil. This is why we can't falter on the goal to increase renewable fuels in this country - from ethanol to biodiesel. Stopping what we started now would be disastrous...we'd be back to zero when the bulls begin to run in the oil markets again - or worse. (Remember?)
I agree. Although alternatives may be less attractive to the average buyer at this point with gasoline prices low, it would be a mistake to turn our backs on any of them.
ReplyDeleteFrom what I understand crude inventories are high right now and will have to come down some before the effects of the OPEC production cuts will be felt. Gas prices will be going back up at some point.
Thank you for the comment - and you are probably right with your assessment on crude inventories. Just checked oil prices today and they are down further - below $38 (http://www.bloomberg.com/apps/news?pid=20601087&sid=aaMkVTKZLF.c&refer=home) - this is the lowest price since July 2004.
ReplyDeleteIt will be interesting to see if the oil cartel OPEC - and even non-OPEC countries - will be successful in cutting production and raising prices; and if so how quickly. (Is the global economy the wild card in this?)
Even if oil prices don't rise significantly early in 2009 it will happen. OPEC et al. would love it if we were lulled into doing nothing with renewables. Have we fully learned the consequences of that?
You are right, it will be interesting to see if OPEC members will abide by the cuts. The markets seem to be saying that they either don't think that OPEC members will follow through or that the cuts weren't steep enough.
ReplyDeleteMy thinking is that the way oil prices have been dropping and inventories rising should give them strong reason to comply.
I hope that we have learned our lesson with regards to renewables. If the industry is allowed fail it will be another 30 years before investors will be willing to risk getting back in.