What is already known is that OPEC will almost certainly cut production at its December meeting. It has several members with faltering economies, particularly Venezuela and Iran. Even countries like Saudi Arabia would like to begin to see the profits that $70 oil were bringing in.
Rumors are that a production cut could hit two million barrels a day. With demand falling in large economies like the US and China, will that be enough? No one knows, but it is a good bet that if this reduction does not do the trick, there will be another one.
Oil may be pushed down by a second important factor. With prices low, the investment in drilling is dropping sharply, which means that, in the near future, supply will take another hit. According to The Wall Street Journal, "As oil and gas prices fall, drilling activity in the U.S. is slowing more than expected, battering shares of drilling companies, hurting economies in energy-producing states and sowing the seeds for supply shortages when the economy recovers."
It would probably be safe to guess that what it happening in the US is also working its way through drilling operations in other large countries. Oil consumers would have to be especially concerned if this is happening in non-OPEC states like Russia, Mexico and Canada where low oil prices are combining with a deep recession to cut capital expenditures on oil exploration.
The price of oil is going up, and if drilling continues to slow, it may stay up for a long time.
Douglas A. McIntyre is an editor at 247wallst.com.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
Reader Comments (Page 1 of 1)
12-15-2008 @ 5:55AM
BHarrison said...
I find the comment in the article: "low oil prices are combining with a deep recession to cut capital expenditures on oil exploration." to be rather wryly "humorous".
How qucikly the arthor of the articles seems to forget the HUNDREDS of BILIONS of "excress profits" that the petroleum industry made a short time ago off of their exorbitant prices . . . gasoline was selling for OVER $4.00 a gal, petroleum product prices were at an all time exorbitant high.
So, the arthor would have us to forget or overlook all of those profits that are in the coffers of the petroleum companies . . . the past profits don't count, only the profits of today and torrow ro supposed "to count"; I don't think so!
It will be a man long time before I personally have any empathyor sympathy for the petroleum companies. (And the pharmaceutical corportions are next on the "hit lists".)
12-15-2008 @ 6:11AM
al coholic said...
As I have said before the producers of oil are just as hooked on oil revenues as we are on oil at any price. Just as there is a limit to how much lower demand can continue to lower prices, there is a practical limit to how much supply OPEC can withhold. REmember, they only control about 40% of total production. Russia and others who desperately need to increase their exports will foil the scheme.
OPEC can stand on a podium and cut production by 5 million barrels a day but that doesn't mean it will actually happen. Producing countries are probably happier with more realistic oil prices anyway, since it weakens our resolve to end our oil habit by making alternative fuels less economically attractive.