Can OPEC Actually Afford To Cut Production?
With OPEC's jawboning that they are cutting production, oil has dropped through support at $38. Will we recapture $38 and hold here or head for $25 as the next stop?
OPEC countries have substantial debts and spent like drunken sailors on completely unsustainable economics over the last ten years. Now, with oil falling about $115 a barrel, their revenues are cut by 70% at constant production rates. If they cut production by an additional 10%, as they claimed they would a week and a half ago, they simply cut their own financial throats even deeper. I would not be surprised to see many OPEC nations cheat on production quotas as they always do. (I also expect the same from non OPEC oil producing states such as Russia.) All of these states need revenue. We could easily see a complete bust in oil prices at some point. Especially if we see major oil producing countries continue to pump oil at such high rates as I expect them to. When oil was blowing to the moon I told some friends we could see per gallon gasoline prices under a dollar in the U.S. (That includes tax for those outside of the U.S.) Not a one took me seriously because it seemed almost ridiculous at the time. If we see a complete oil bust, it would likely occur before the end of 2010. Such an event could create a very serious regional destabilization in the oil producing states from Russia down through the Middle East. More volatility.
Over the years I have seen analysis after analysis attempting to rationalize OPEC production cuts and increases tied to the price of oil. This is a lot about nothing. Oil market dynamics are driven by supply and demand not a roomful of bureaucrats stealing money from their citizens. OPEC announces it cuts production when oil drops to $10.......but the reality is $10 oil increases demand in a relatively stable global economy. OPEC cuts production when oil is $147......but the reality is oil at that price curbs demand.
The market has known for months that OPEC was supposedly going to cut production. But, prices aren't obliging. And, neither is a weaker dollar. OPEC doesn't control oil prices any more than a weak dollar guarantees oil is going to rise or anymore than the Federal Reserve controls the American economy. Remember when Wall Street was telling us that oil was so expensive because of a weak dollar? The weak dollar is a symptom not a cause for high oil prices. The dollar is still relatively weak being within ten to fifteen percent of its multi-decades low yet oil has imploded. Has anything Wall Street told us been based in truth?
Boone Pickens intimated last week that OPEC is engineering the price fall to keep the noose around our neck. Really? So OPEC is cutting their own income by nearly 80% at a time when many of these economies are going bust simply to keep the world hooked on oil? That is another real humdinger. Now, I like Boone and link to his alternative energy site on here because he is the only public voice pushing a specific actionable plan for alternative energy, but Boone's premise for rising oil prices was not based on truth. The U.S. does not need high oil prices to move to a sustainable economy, greater energy efficiency or alternative energy. It needs innovation. Something it does better than any other nation in history. That is not an accident either.
Who told you oil was a bubble for the last three years while the entire world embraced one of the greatest hoaxes of all time? Who loves you baby?
OPEC countries have substantial debts and spent like drunken sailors on completely unsustainable economics over the last ten years. Now, with oil falling about $115 a barrel, their revenues are cut by 70% at constant production rates. If they cut production by an additional 10%, as they claimed they would a week and a half ago, they simply cut their own financial throats even deeper. I would not be surprised to see many OPEC nations cheat on production quotas as they always do. (I also expect the same from non OPEC oil producing states such as Russia.) All of these states need revenue. We could easily see a complete bust in oil prices at some point. Especially if we see major oil producing countries continue to pump oil at such high rates as I expect them to. When oil was blowing to the moon I told some friends we could see per gallon gasoline prices under a dollar in the U.S. (That includes tax for those outside of the U.S.) Not a one took me seriously because it seemed almost ridiculous at the time. If we see a complete oil bust, it would likely occur before the end of 2010. Such an event could create a very serious regional destabilization in the oil producing states from Russia down through the Middle East. More volatility.
Over the years I have seen analysis after analysis attempting to rationalize OPEC production cuts and increases tied to the price of oil. This is a lot about nothing. Oil market dynamics are driven by supply and demand not a roomful of bureaucrats stealing money from their citizens. OPEC announces it cuts production when oil drops to $10.......but the reality is $10 oil increases demand in a relatively stable global economy. OPEC cuts production when oil is $147......but the reality is oil at that price curbs demand.
The market has known for months that OPEC was supposedly going to cut production. But, prices aren't obliging. And, neither is a weaker dollar. OPEC doesn't control oil prices any more than a weak dollar guarantees oil is going to rise or anymore than the Federal Reserve controls the American economy. Remember when Wall Street was telling us that oil was so expensive because of a weak dollar? The weak dollar is a symptom not a cause for high oil prices. The dollar is still relatively weak being within ten to fifteen percent of its multi-decades low yet oil has imploded. Has anything Wall Street told us been based in truth?
Boone Pickens intimated last week that OPEC is engineering the price fall to keep the noose around our neck. Really? So OPEC is cutting their own income by nearly 80% at a time when many of these economies are going bust simply to keep the world hooked on oil? That is another real humdinger. Now, I like Boone and link to his alternative energy site on here because he is the only public voice pushing a specific actionable plan for alternative energy, but Boone's premise for rising oil prices was not based on truth. The U.S. does not need high oil prices to move to a sustainable economy, greater energy efficiency or alternative energy. It needs innovation. Something it does better than any other nation in history. That is not an accident either.
Who told you oil was a bubble for the last three years while the entire world embraced one of the greatest hoaxes of all time? Who loves you baby?
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