While these cuts (which will begin October 1) are not going to have too material of an effect on the overall market it does add to the question of what lies ahead out of OPEC. While OPEC's next formal meeting is not until December, many questions have been floating around regarding whether or not the 11-nation group will meet for an emergency meeting between now and then to cut their daily production. So far the official stance of the group is that no cuts are coming, but many feel that should oil tick under $60 a barrel that may not be the case.
I must admit that I am a little puzzled by today's announcement from Nigeria and Venezuela. These cuts by themselves are not going to really amount to too much as far as stabilizing the price of crude. When you consider that the world consumes around 80 million barrels of oil each and every day, these cuts which combine to 170,000 barrels are literally a drop in the bucket. Nigeria has recently lost about 25% of it's output to rebel attacks and Venezuela is already under its OPEC quota, so today's announcement is definitely a puzzle.
But with oil, emotions always tend to play a big role in controling prices, and any announced cuts are going to give crude a jump in price, and we have seen a little of that today. But I would expect that today's announcements will probably be forgotten by Monday. Should one of the big boys like Saudi Arabia or Kuwait jump on board and trim their production then we would be looking at a different situation, and one that could push prices back up towards $70, but for now no other country has declared cuts are coming. In response to today's news, an OPEC spokesmen told Reuters today that "There is definitely no agreement, whether formal or informal, within OPEC to cut current production."
Michael Fowlkes has worked as a stock trader for 7 years and spent the last 2 years working as an analyst and portfolio manager for an online investment advisory service.
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Reader Comments (Page 1 of 1)
9-29-2006 @ 4:41PM
Brad said...
In my opinion,this is a technical "warning shot" over the bow of the US govt.Both of those govts do not like Bush and are letting him know by this small action,that it would be easy to shut it down to the US.I dont think this is a bid to get prices up by the size of the cut.As you may have read Chavez was in Harlem and upped heating oil for the poor which would offset monetary losses by this small cut.I feel this is a political move and not an economic one