Oil prices are getting a big boost today, as investors are betting on hearing news of huge production cuts coming out of OPEC this week.With oil well off its highs from over the summer, many had already been expecting to see OPEC step in and cut production, but earlier this month OPEC made it clear that it wants to shock the market into sending prices higher.
Prices have moved up over $50 a barrel today, hitting a high of $50.05, but have cooled off slightly and are currently sitting at $49.25, up $2.97 as we await to hear exactly how deep the production cuts could run.
OPEC, which accounts for around 40 percent of all the world's oil production is gearing up for its current meeting this Wednesday in Algeria, and some early indications will be that we will see a cut of anywhere between 1.5 and 2 million barrels, but based on comments earlier this month, the group may decide to cut even deeper to really get the market back in its favor.
No matter what sort of cuts get announced this week, there is always the underlying question of whether or not the cuts will actually get implemented. OPEC does not have the best history of following through with its promises, so analysts will definitely pay attention to the current decision, but undoubtedly will scrutinize the effectiveness of adhering to the new decision.
Oil hit a four year low earlier this month down at $40.50, and the recent move from that level up to the $50 level has been fueled mainly on the assumption of that we are going to see big cuts coming this week, so anything less than a 1.5 or 2 million cut could send prices back down a bit, so if it is OPEC's goal to send prices higher, say closer to the $70 a barrel that is believes is fair value, we could see cuts closer to 2.5 or 3 million barrels, but that remains to be seen, and if I had to guess, I would put my money on seeing a more modest 2 million barrel cut.
Despite OPEC's best efforts, even huge cuts in production may not be enough to keep oil from resuming its slide, says some experts, who feel that oil demand is going to continue to erode and could be enough of a catalyst to send prices much lower, perhaps even down towards the $30 level as global economies continue to contract.
What are your thoughts on this week's OPEC meeting? Any bets on how deep the cuts will be? What do you think is a fair price for oil? Let us hear what you think.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
12-15-2008 @ 2:21PM
Richard said...
I'm sure they will cut production, But I think that the american people have learned a lesson about how this works.
They will not go back to their old habits, more people are car pooling and most are cutting back on unecessary trips.
So less fuel usage. Not going to change.
Rich T
12-15-2008 @ 2:38PM
angel said...
These bastards will not learn till the world has no other option but take away the only leverage they have and replace it with alternative fuels on a bigger scale than the tiny tinkering level currently used.
12-15-2008 @ 2:58PM
Traves said...
angel:
these 'bastards' are just like the 'bastards' on wall street and every other street. They're in the business of making money - IF you really have a problem w/ Arab oil - fill your car up w/ American - otherwise you and everyone else should stay quiet.
If people are so vulnerable by slight price increase in oil - then they should stop being greedy and start living a life on bigger margins.
12-15-2008 @ 2:59PM
V.Marchisotto said...
OPEC SNEEZES AND THE GREED IN WALL STREET RAMPS UP!!! YOUR EDITORIALS SHARE ALOT OF THE BLAME! OPEC COULD SAY WE WILL MAINTAIN CURRENT PRODUCTION AND THE SPECULATORS WILL STILL RUN IT UP AND SHORT SELL IT! ALL AT THE MIDDLE CLASSES EXPENSE! TAKE OIL OFF THE MARKET! THE ARABS ON THE ONE HAND ( WHEN OIL WAS ALMOST $150. A BARREL,)PRETTY MUCH BLAMED EVERYBODY ELSE FOR ITS RISE. NOW THAT ITS DOWN THEY ARE DOING THE NOBLE THING BY CUTTING PRODUCTION TO SHORE UP PRICES SO EXPLORATION WILL NOT STOP! BS!!!!!!!!!!!!!!!! THEY FEEL OUR PAIN INTHEIR POCKETS! AS WELL AS OUR FINANCIAL FUTURES, ALL THEY CRE ABOUT IS THEIRSELVES. AND WHO CAN REALLY BLAME THEM WALL SREET SHOWED THEM THE LIGHT!!!!!!!!!!!!!
12-15-2008 @ 3:07PM
Traves said...
V.Marchisotto:
Exactly - why do other people around the world get blamed for Wall St. and American greed. They want to make money and survive as well. More power to them.
Does that mean that I don't support alternative fuel? No. But America takes 25% (or a huge amount) of the world's oil and they look to OPEC each time for the blame game.