Oil Falls Below $38 - OPEC Cut Ignored

[Purveyor]

Source: CNN Money

Slowing global economy and waning fuel demand continue to weigh on market.

Last Updated: December 18, 2008: 10:26 AM ET

NEW YORK (CNNMoney.com) -- Oil prices fell below $40 a barrel Thursday, reaching levels not seen since June 2004.

Investors continued to shrug off an upcoming OPEC production announced on Wednesday, after which oil closed at a 4 1/2 year low.

U.S. crude for January delivery, which ceases trading on Friday, fell $2.10 to $37.96 a barrel in early trading, but not before touching a trading low of $37.71. The February contract, which begins its front-month run next week, fell $1.50 to $43.11.

On Wednesday, the Organization of Petroleum Exporting Countries, an international trade organization whose members supply about 40% of the world's oil, elected to cut production by 2.2 million barrels a day in January.

But investors were concerned about the slowing global economy's impact on crude demand, and that sent the price down $3.54 to $40.06 a barrel Wednesday, its lowest close since July 2004.

"They're wondering whether OPEC can enforce this cut," because the budgets of many OPEC nations are already stretched incredibly thin, said Nimit Khamar, analyst with Sucden Financial in London.

Read more: http://money.cnn.com/2008/12/18/markets/oil/index.htm

[notadmblnd]

1. Hopefully, those nations in OPEC were thrifty and saved some of the $$'s they gouged out of us

Because here in the US I don't see demand rising any time soon.

[liberal N proud]

7. Dubai is refrigerating beaches

:shrug:

[truthisfreedom]

12. Ooh, nice... maybe they can use melting polar cap ice?

Just sayin'...

[Skink]

2. There goes the R and D.

[high density]

3. Slowing economy and demand?

It seems more likely this is mostly a result of the speculation money drying up, and now we're back to a real market price. There was no "demand" a year ago that would explain the insane prices we were seeing.

[Frank Cannon]

20. You are absolutely right

And I haven't seen a single corporate media talking head talk about the major role that speculation played in our being fucked at the pump for so long. Even the peak oil end-timers on this board, who saw us running out of oil within months, are pretty much changing the subject and pretending the whole thing never happened.

[bhikkhu]

22. In retrospect we'll probably find that oil production peaked in summer

...looking at the production figures. There was a plateau for about a year and a half at 84 mbpd or so, which jumped to a new plateau in Nov 2007 at 85 mbpd. Expected production cuts will take that number down quite a bit, and it seems likely now that the new oil production scheduled for 2009-2010 will be less than what is being shut down currently.

Volatility is inherently very bad for the oil business, as far as production goes. The same thing happened in the early eighties when the bottom dropped out of the price and exploration, production, maintenance, etc, all slumped. Most of the projects that are capable of offsetting natural declines are huge investments made over the course of years, that tend to get delayed or mothballed when neither price nor demand can be guessed with any likelihood.

I suppose I would be a "peak-oiler", as the perspective of needing to plan alternatives to a declining resource seems very sensible. I would interpret the current situation as an example of severe market dysfunction - oil priced lower than production costs - and we will probably have its alternate form again in a year or two - oil many prices at many times its production cost. Two different modal positions of an energy economy ratcheting its way down.

[enid602]

4. prices

OPEC production cut anouncements are generally not immediately followed by price reductions. It takes a while. With the Euro rising (from $1.24 to $1.44 in two weeks) so rapidly, you can bet that prices will go back up soon.

[Fearless]

5. The beginning of deflation...

Buy what you really need/can afford now, soon you won't be able to get it at all even if you have the money.

[tjahome]

6. Cartels are interesting

The problem with collusion in order to price control is thus: you only choose to decrease production and therefore increase price when the price is too low. When the price is too low, the oil producing countries are experiencing a decline in revenue. However, in order to increase prices, those very countries need to allow revenue to decline even further (sell less of the now lower priced commodity). This very situation tests the gumption of the cartel, as some members (Venezuela, Iraq) may not be in a financial position to decrease production, and by refusing to do so face sanction or expulsion from OPEC.

What worries me about this is the fact that diplomatically we (the US) do not have any input here. Furthermore, OPEC nations have less control today than in the 1980's, with China now a net exporter of oil, and the Russian inability to turn off wells because of temperature problems.

In a nutshell, my rambling post can be reduced to this: I don't think OPEC can survive this time. There are traders already questioning the willingness of the partners to go along with the cut.

[Baby Snooks]

8. A planned economic collapse?

The only countries that have managed to survive the economic collapse, and it is an economic collapse, are the OPEC countries. There is something wrong when oil drops $100 a barrel within six months that has nothing to do with supply and demand. The market is being manipulated and it may be that someone is manipulating in order to collapse the economies of the OPEC countries as well. And before anyone tells me to put on a tin hat, think about it. Demand has not fallen that much to justify such an enormous drop.

[Lucky Luciano]

9. well, demand has dropped...

every week the DOE puts out numbers showing how much the supply has been increasing (A LOT!) Now the supply is so high that oil is being stored on tankers since there is nowhere else to put it!

[Blaze Diem]

11. We wear matching tinfoil hats. I am in agreement with your post.

Its been planned since Bush's pre-selection.

[RaleighNCDUer]

10. And the Cheney energy task force washes its hands and walks away,

saying "My job is done."

[Sex Pistol]

13. Good news. Cheap oil will help businesses that use a lot of fuel.

[Arctic Dave]

14. The problem is that companies that use a lot of fuel are service companies.

If people can't afford the service, who cares what the price of fuel is.

[okieinpain]

15. good point, I think the higher prices earlier this year helped push

the country into going belly up, now the opec countries are paying the price for their greed. hahahaha, baby eat too much candy.

[Sex Pistol]

16. Yes, but we all have to eat. And fuel is prerequisite when it comes to delivering food.

[Arctic Dave]

17. The more exotic the food the more fuel is used to deliver it.

Less money, less exotic the food. Think lobster or kiwi.

[Sex Pistol]

18. I don't consider fresh vegetables and fruit to be exotic, do you?

[Arctic Dave]

19. Depends on were they are from and how long of a trip it took to get to were you are at.

[ohio2007]

21. harvest time in S America

Crops are coming north at a reduced cost and that is good news to those farmers who won't see crops rot due to prohibitive transportation costs.

[Arctic Dave]

23. I guess they could keep them local and feed their population.

But really, who am I trying to kid.

[ohio2007]

24. the farmer can can afford to pay more harvesters if they accept the highest offer for their crops

and get more produce out of their fields....
In the meantime, oil is falling into the $20 bbl range;

http://english.eluniversal.com/2008/12/24/en_ing_esp_venezuelan-oil-close_24A2176015.shtml


meaning more prosperity for the farmer and shipper to spread the penny's further.
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3314134&mesg_id=3314331
I could be wrong but the economy also starts from the ground up unless farmers should be forced to accept prices fixed by the state
http://www.iht.com/articles/2008/05/18/america/18venez.php

[Mari333]

25. haha

[Dyedinthewoolliberal]

26. All those who think we're being

manipulated raise their hands :mad:
How could gas be $4.00 plus per gallon about 60 days ago and yesterday I filled up for $1.70?
It stinks and argues for spending public money on efficient,passenger friendly mass transit. Unfortunately, that won't happen during any of our life times....... :shrug: