OPEC did not agree cut production this week-end. The cartel members could not find common ground and decided to wait until December. OPEC cut production quotas in October by 1.5 million barrels or 5.2% of daily demand. That has had little impact on the oil price decline.
There are two major problems. One, the demand decline has taken the market by surprise. The global economies are falling faster than expected and look like they will continue to decline in 2009. Second, and more importantly, OPEC countries have been aggressive with their economic expansion plans and they do not feel like cutting production to stabilize prices. will help with increasing revenues.
The classic problem of cartels is that you have cheaters. And there are some major cheaters in the world. Venzeula gains 90% of its export revenue from oil. The majority of government revenue is tied to oil and President Chavez needs every last cent to stay in power. Russia was planning for $95 a barrel oil so they will have to produce flat out to meet revenue targets. Iraq needs the revenue for capital building. Iran has internal economic problems which need more money. We have not even started to discuss the other Arab countries.
Right now there is little reason to see prices going up. Let's not forget that oil was $10 a barrel ten years ago.
There are two major problems. One, the demand decline has taken the market by surprise. The global economies are falling faster than expected and look like they will continue to decline in 2009. Second, and more importantly, OPEC countries have been aggressive with their economic expansion plans and they do not feel like cutting production to stabilize prices. will help with increasing revenues.
The classic problem of cartels is that you have cheaters. And there are some major cheaters in the world. Venzeula gains 90% of its export revenue from oil. The majority of government revenue is tied to oil and President Chavez needs every last cent to stay in power. Russia was planning for $95 a barrel oil so they will have to produce flat out to meet revenue targets. Iraq needs the revenue for capital building. Iran has internal economic problems which need more money. We have not even started to discuss the other Arab countries.
Right now there is little reason to see prices going up. Let's not forget that oil was $10 a barrel ten years ago.
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