OPEC To Meet Next Week, Expects to Slash 2 Million Barrels Per Day
Dec 12th, 08
OPEC is set to meet again in Algeria on December 17th, 2008, as crude oil prices hit the $40 mark.
OPEC is set to meet again on December 17th, 2008, and many analysts have speculated that they will push for further production cuts. Crude oil prices sunk to new lows at the $40 mark and just recently we have seen a rise inching closer to the $50 a barrel mark. Saudi Arabia has stated that they would ideally want oil priced at $75 a barrel, while many OPEC countries have been affected with the recent lows.
Some OPEC nations are beginning to see some trouble, even amongst the richer nations of the group with rather small populations. As oil sales are their primary source of income, it is normal for OPEC governments to subsidize many consumer goods. With countries such as Iran and Venezuela getting only one half to one third of the revenue required to run and maintain day-to-day operations, it is a strong possibility they will experience some political turmoil if prices continue to linger at this range. The wealthier OPEC members are affected as well with the combined hits from low oil prices, crashing real estate prices, and the overall financial crisis. OPEC’s goal will be to effectively and collectively make broad cuts to oil to force prices to rise again.
OPEC straddles a thin line however, as the two previous cuts have not affected the cratering prices for crude. OPEC President Chakib Khelil warned that the oil markets should prepare for a surprise decision on further cuts from the cartel. While many analysts have predicted outputs to be reduced by one million barrels per day, Khelil had warned that it would be “severe” enough to shock the oil markets into rebound, suggesting collective reductions of up to two million barrels per day.
Combined, OPEC pumped an average of 31.38 million barrels per day in November, a decline of only 880,000 barrels from the October averages. OPEC had stated from the previous two meetings it would cut up to one million barrels per day. The delicate balance within the oil exporting nations lies between the wealthier Gulf nations, who are able to withstand short-term operating losses, with countries such as Iran, Venezuela, Nigeria, Ecuador, and even Russia, who will be severely impacted by continually low prices. Russia will be in attendance to the next OPEC meeting, stating that their interests are for protecting their “revenue base” and that they would take the defensive measures necessary to “[cut] the volume of oil production”.
While such production cuts may be able to reinflate crude prices, the opposition has noted that doing so in the middle of a global recession can only deepen overall problems and delay a recovery. Along with the continued slide of prices many projects have been put on hold or delayed as investments in oil production projects falling. This combination of a deepening financial crisis, dropping investments in exploration and production, and a severe credit crunch can only lead to further bad forecasts for our future.