Friday, October 20, 2006
Oil And OPEC
for November delivery settled $1.68 lower at $56.82 a barrel, the lowest this year after trading as low as $56.55 in intraday activity. U.S. oil prices have dropped from July records of $78.40 a barrel on healthy inventories.
London Brent crude
fell $1.19 to $59.68 a barrel.
OPEC ministers agreed early on Friday to reduce output by 1.2 million barrels per day (bpd), 200,000 bpd more than expected. But some analysts expressed doubts about whether the cartel will reach the targeted reductions.See, the higher-than-expected cut is a warning shot. Regardless, though, it is clear that the overall expectation is for oil to trend lower, and once people get that in their heads only supply shortages will change it. The real deal is that somehow people started believing that the world was running out of oil, and that it just isn't so. Forbes:
"This cut should result in about a half million barrels per day of production actually getting taken out of the market," said Jim Ritterbusch, president at Ritterbusch and Associates in Galena, Illinois.
Some OPEC ministers said a further cut of 500,000 bpd could follow when the cartel next meets in Nigeria in December.
Moreover, many analysts see OPEC's action as proof that the group responsible for supplying more than a third of the world's oil is increasingly worried about slowing demand growth and burgeoning supplies from non-OPEC sources.All over the world, people have begun wondering about recession. Also, China says it's slowing its rate of growth, so that may have been a pretext for some people. But the real truth is that demand has been slowing and that supply has been increasing for a while, and sooner or later people were going to notice.
"What brought us to this point - where OPEC needs to reduce production by 1 million barrels a day - is bearish for prices," James Cordier, president of Liberty Trading in Tampa, Fla. "The fact is, demand has fallen or is about to fall more and OPEC is trying to catch this by producing less."
But what really matters is the OPEC basket, and I think we have to wait for those prices until Monday? They are going to try to keep it above 55.00, I think.
The US stockpile was reported to be 14 percent higher than the five-year average.
I believe Oil is a demand driven product. In most instances, OPEC is inept. They need the money, they're liars and cheats, and need to pump the oil at whatever price, as it's difficult to slow production down. Watch the Economy. That will tell you where oil is going. Or more likely, the reverse.
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