Thursday, December 14, 2006

OPEC: "No more Mr. Crooked Guy."

OPEC has preliminarily agreed to a further oil production cut of 500,000 barrels a day starting in February, on top of an earlier agreement to cut 1.2 million barrels a day. Apparently, they mean business on the idea of a floor of roughly $60 a barrel or so. (Most OPEC oil sells at a discount to light sweet oil like WTI, so whatever price is being bandied about in the press, most OPEC producers are seeing something several dollars below that.)

Traditionally, an output cut from OPEC was treated as a joke because there was so much cheating. (Highlighting, by the way, the lack of reliable production statistics from around the world.) However, according to the article below about two thirds of the earlier cut has been implemented, and so we are talking about meaningful amounts of oil production being pulled from the market.

I see people interviewed regularly on various business programs who say "Hey, there's too much oil, it's going to $50. (or $40 etc)." They seem to be ignoring the fact that OPEC earlier this year clearly stated it wanted $60 and that this time, they have the means and apparently the will to hold it there.

CNBC: OPEC Agrees to Cut Oil Ouput In February by 500,000 Barrels a Day.


OPEC ministers agree the market is oversupplied -- stocks in the U.S., its top consumer, are the highest since 1998 for the time of year -- but some fear cutting during peak demand could drive prices further above $60 and hurt consumer nations.

The opinion of leading exporter Saudi Arabia is key in determining OPEC output policy. Oil Minister Ali Al-Naimi told reporters on his arrival the market was in better shape than when ministers last met, at October's emergency talks.

"The fundamentals of the market are much better than they were in October," he said, adding: "We probably have a little work to do to make it an even better, more stable market."

"We have to work together as a team," Naimi said. "We have done well so far, we may have to do some more."

U.S. Energy Secretary Sam Bodman and International Energy Agency head Claude Mandil have called on OPEC to wait until next year before deciding on further supply reductions.

A delegate from one of OPEC's Gulf members said there was a strong case for holding fire. "No cut, compliance -- this is the view up until now from the Gulf members," the delegate said.