Last month when OPEC decided to cut production by 1.2 million barrels a day during November, the eleven nation group also announced intentions to make further cuts in December. Today the oil cartel tried to re-affirm this intention as Saudi Arabia's oil minister put out a statement that the group will consider more cuts in December. So why is this news? If the group already said they were going to make the cuts, why is this statement coming out of Saudi Arabia considered new news?Those readers who have been following the OPEC situation on this blog already know that statements out of OPEC really need to be seen before we can believe them. For the past few months we have continuously heard the group talking about and promising cuts, but just have not seen the follow through needed to really help oil rebound. The November production cuts that were promised didn't really work out so well. While the group was promising 1.2 million barrels a day pull backs, analyst's are actually estimating that OPEC nations have been successful in cutting about half of that volume.
So, it stands to reason that when OPEC stated last month that more production cuts were coming in December, the market was a little weary of the promises. OPEC just does not have the history of cutting back on the flow of the precious crude while prices are high. Sure, $60 oil is a far cry from the peak we saw this summer up around the $80 level, but at $60 a barrel we are still looking at pretty high oil. Will these countries actually cut back when their most valuable export is so richly priced? Many are doubtful. Many think that these continuous promises and statements from the group are merely a psychological ploy to pull buyers back into the market.
With the November cuts not being taken seriously, maybe the Saudi Minister is trying to make sure that we believe in follow on cuts into December. I for one, will just have to wait and see it to believe it.
Oil has managed to make a move above the psychological $60 barrier today, but it hasn't moved too much, another indicator that the market is not completely ready to convert to believers just yet. Currently the precious commodity has traded up $0.24 to $60.14.
Here is a current chart of oil to give you a little perspective on the impact that the November cuts have had and the anticipation of future cuts. As you can see, oil has managed not to fall much below where it was a couple months back, but we have still not been able to see a rise in the market. Considering we have made it through the usual hurricane season and are now into the winter heating months, you would think oil should be starting to trade higher, especially in light of the recent cuts. This just isn't happening. While I believe that the market has a greater chance of turning bullish than bearish I am not sure what it is going to take to get buyers to jump back into the oil game.
Michael Fowlkes has worked as a stock trader for seven years and spent the last 2 years working as an analyst for the online investment advisory service Investor'sObserver.
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Reader Comments (Page 1 of 1)
11-27-2006 @ 2:59PM
Germanico Vaca said...
There is a sad reality in the United States. We keep forgetting that the dollars keeps going down and we are selling the dollar as an investment to foreign countries to be able to print dollars. So while we claim that oil is more expensive in fact since the dollar has lost about 80% of its value against other currencies the reality is that oil at $60 of a very devalued dollar and therefore the price will jumo to one hundred dollars by next year because the dollar may take a even sharper decline by yerar end.
11-27-2006 @ 3:06PM
Fred Allen said...
The Dollar is COOKED, Down on almost all major exchanges,why because China practically owns the US. The biggest buyer of Treasury Notes. If they were to cash in, it would be back to 1929 again. The Great Deppresion. Oil is run on rumor and speculation, as supply and demand is almost constant year in and year out. Every Holiday prices at the gas pumps go up WHY? It might take 3-5 years or more, America had better be prepared, a Financial doomsday is coming.
11-28-2006 @ 12:02AM
Mr. noitall said...
It good to see that some other commentors are saying that maybe the problem is the Dollar and not the oil. I think that the price of oil would still be the same even if there wasn't a cartel. Maybe if we compared the price of oil to other commodities and raw materials we would get a better picture of what is going on.