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.
[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.
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