Gas too cheap: OPEC approves largest output cut ever
You didn't really think OPEC was going to pack up its supercar fleet and shut down the holiday mansions while $1.55 gasoline -- and that's in California -- ruled the day, did you? Oh no. OPEC hasn't merely cut production, it gutted production by the never-before-seen amount of 2.2 million barrels per day. As for the market, surprised as it might have been, fazed it wasn't: oil sank to $40.20/barrel immediately after Khelil's announcement. Those are 2004 prices, which means – as far as oil's concerned – we're living Back to the Future.
[Source: MSNBC via Truckblog, photo by XcBiker | CC 2.0]
The short-term issue is that OPEC no longer enjoys the cohesion it had with non-OPEC members like Russia. Russia is the second largest oil producer behind Saudi Arabia, and in spite of the kingdom's hope that Russia would announce significant cuts, the communist power didn't. Russia said it would cut production by 600,000 barrels, but that reduction already happened in November. What does all this mean? It means that without any definitive statements on oil production, no one knows how low the price of a barrel is going to go.
The long-term issue is that investors still believe demand for energy is going to drop due to global economic conditions. Already, OPEC says that "crude volumes entering the market remain well in excess of actual demand," and with everyone proclaiming that things will get worse before they get better, that means a lot of oil sitting around... not making money. Clearly, that's not the future OPEC wants, adding the intriguing warning that "if unchecked, prices could fall to levels which would place in jeopardy the investments required to guarantee adequate energy supplies in the medium to long term." So there.
Get a WordPress.com Blog
_opt_thumbnail.jpg)
_thumbnail.jpg "2011 Audi A8: Live from Miami")
Reader Comments (Page 1 of 5)
Beastage 4:36PM (12/17/2008)
Yet oil price kept on falling , hah!
Soon Dubai future tallest tower in the world will be tallest tower in the world that never got built.
The momentum against the oil is already rolling, the dropping prices wont stop it... for now.
Reply
ropeburn 5:29PM (12/17/2008)
I think the drop in output is no surprise.
think of it this way.
You take "widgets" out of the ground and sell them globally.
the price of widgets has gone down, the price of virtually everything has dropped.
it makes sense to SLOW down on bringing your widgets to market when they're not going to bring you much money. They're probably not hurting for money/liquidity.
It's just business, EVERYONE who produces oil is slowing down,
what's the rush, prices and demand have dropped off.
This is nothing to get smug about, it's not a victory for the US,
it's a symptom of the depressed economy that WE are in.
sorbensen 2:58PM (12/18/2008)
I'm just stopping by to remind oil revenues constitute only 20% percent of Dubai's revenues now. Unlike most of their neighbours they've thought of a post-oil scenario.
scallon 4:37PM (12/17/2008)
Well gas was artificially high for so long, and the OPEC nations made such a boat load of money, that I really don't mind if they can't buy their 232nd price his 3rd Veyron.
Reply
SPF 4:45PM (12/17/2008)
I bet they'll all cry themselves to sleep tonight on their diamond encrusted bed.
Mobius_1 7:10PM (12/17/2008)
And when he wakes up, he'll pop down to his garage (climate controlled, of course) and wonder which car to chrome next.
MoeJoe 4:38PM (12/17/2008)
Good, the arabs have taken more then enough of our money.
Reply
Mitchell 4:41PM (12/17/2008)
You do realize we get a large amount of our oil from Canada right?
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
Greg 6:46PM (12/17/2008)
@Mitchell:
And you realize that Canada isn't in OPEC, right?
Will 4:39PM (12/17/2008)
Bring on the sub-dollar-per-gallon gas!
Reply
9600baud 4:39PM (12/17/2008)
OPEC is run by greedy assh*les but then again most companies are...
Reply
Fatima 4:40PM (12/17/2008)
This is good! Now the US gov't needs to impose a hefty tax so gas prices can be back up to around $3.50/gal. This way instead of the middle east making money the US can use the money to improve mass transit and build Mag Lev trains and use the money for R&D of hydrogen technology. Gas prices cannot stay this low, it will cause people to drive more which means more CO2 and more clogged roads. I do not want gas prices to go up where middle east is making money only US.
Reply
John D 9:56PM (12/17/2008)
Finally! Someone who actually is giving a bit of thought to our future! A gas tax/price floor is an absolute necessity to internalize fossil fuel externalities, and promote development and use of alternatives.
compy386 4:52PM (12/17/2008)
I'd like you to explain why we should build a mass-transit system in a small town with a centralized population
scallon 5:00PM (12/17/2008)
While I appreciate the sentiment, do you really think congress would use your hypothetical tax revenue in an intelligent or green manner? More than likely it would just help fund the war in iraq or social security or some other lost cause.
stealthebeatles 5:02PM (12/17/2008)
Because the tax money they already make is used so efficiently, we should add more, right?
Joe 5:16PM (12/17/2008)
Go home, hippies.
Artificially high gas taxes and price floors are socialist policies. Go sell your wares elsewhere.
Edward 5:21PM (12/17/2008)
I second the $3.50 gallon per dollar price and am surprised that the government has not done this already.
Living in a respectable neighborhood, I see more and more people buying huge SUV's, when two months ago, most people were looking into buying compact or hybrid vehicles.
Google posted a decline in the keyword search: 'Hybrid', as soon as the gas went down.
I only do not agree with you on hydrogen, as hydrogen is not a truly sustainable resource. I would change this to electric.
-Edward
Jake B 5:24PM (12/17/2008)
There is no way the average American working man needs the extra burden of high fuel prices right now. We are already screwed as it is, I don't want to get screwed by the market then get raped by the gas taxes.
dinnercoat 5:24PM (12/17/2008)
@Joe:
If you think the idea of increasing taxes on gas to fund development of technologies that could possibly reduce or eliminate our dependence on oil is the first instance of socialism (as an expletive) in the USA then you need to wake up and smell the coffee.
Also, news-flash, the Red Scare ended in the 50s ....