Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
OPEC Production Cut Up in the Air as Members to Clash Over Oil Prices
http://mney.co/1QbHwns
Required Please enter the correct value.
Twitter

OPEC Production Cut Up in the Air as Members to Clash Over Oil Prices

By Jason Simpkins, Managing Editor, Money Morning • October 23, 2008

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

By Jason Simpkins
Associate Editor
Money Morning

In the face of the worst worldwide financial crisis since the Great Depression, the Organization of Petroleum Exporting Countries (OPEC) is expected to cut crude-oil output and raise prices at an emergency meeting in Vienna tomorrow (Friday). But even with crude oil prices down more than 50% from their July record highs, friction between cartel members has analysts wondering just how big the prospective cut will actually be.

Oil prices continued their downward slide yesterday (Wednesday), dropping $5.22 a barrel, or 7.2%, to $66.96. Prices are down about 55% from the record high of $147.27 a barrel reached July 11. Crude’s dramatic plunge now has OPEC members scrambling to cut production and at least stabilize prices. The cartel members all agree that the outlook for demand has declined significantly. But there is a considerable amount of discord over the size of that cut.

OPEC members called for the emergency meeting – the cartel had originally been set to meeting Nov. 18 – so it might settle any of the production disputes between cartel members, even as it prepares for a global recession.

That will be easier said than done. Different OPEC countries have different economic models – with different oil-pricing floors – to keep their trade balances in check. PFC Energy estimates that Qatar, which imports just about $15 billion worth of goods a year and has little government spending, only needs oil to trade at $10 a barrel to keep its trade balance from sliding into the red.

At the other end of the spectrum, however, are Iran and Venezuela, which rely heavily on petrodollars to finance social programs and infrastructure development, meaning they need crude oil to trade at $100 a barrel or better. Little wonder those two countries have been the most vocal proponents of a large cut in production.

However, OPEC’s most productive and influential member, Saudi Arabia, has based its budget on an average oil price of $50 a barrel, according to PFC. The Saudi government in Riyadh also has political motives for wanting to keep oil prices in check. Saudi policymakers have routinely expressed concern about high oil prices leading to demand destruction. Oil is the primary source of energy in the developed world and the world’s leading crude producer doesn’t want that to change.

“We are concerned about the permanent destruction of demand," a senior Saudi official told BusinessWeek. "Those who buy hybrid vehicles are not going back to SUVs."

Iran and Venezuela don’t have the time, or the money, to worry about oil demand a decade from now.

“The divisions arise in OPEC because what countries need and want varies,” Gareth Lewis-Davies, an oil analyst at Dresdner Kleinwort Ltd., told Bloomberg News.. “The Saudis are playing a long-term political game. Other countries have higher costs.”

Oil accounts for 50% of Venezuela’s government revenue and 95% of the country’s export earnings. Crude exports make up 85% of the Iranian government’s revenue.

"Venezuelan fiscal profligacy and its huge off-budget populist programs have left it very little room for error," the PFC report said.

Iran and Venezuela also have political agendas. Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chavez both use oil as a bargaining chip and a rhetorical weapon in their venomous assaults on the United States. But Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates are all on much better terms with Washington, and don’t want to alienate a new U.S. administration or jeopardize relations with their best customer.

The division within OPEC has been particularly evident over the past few months. At a June 22 meeting in the port city of Jeddah, as the price of oil skyrocketed, Saudi officials unilaterally announced a 200,000 barrel-per-day (bpd) increase in production on top of a 300,000 bpd hike issued just a few weeks earlier.

Later, as OPEC members rallied to halt oil’s price decline in September, Saudi Arabia remained hesitate to accommodate the hawkish chorus. Instead, Riyadh conceded to vague language promising a production cut, but offered private assurances to customers that it had no real intention of honoring it.

"Except for Iraq and new members who are outside the OPEC quota, the rest of the members should produce in the framework of their committed quota," Iran's oil ministry news agency Shana quoted Algerian Oil Minister and OPEC President Chakib Khelil as saying.

Saudi Arabia produced 9.45 million barrels a day in September, according to Bloomberg estimates. Its output target is set at 8.94 million barrels.

Iran’s energy minister said earlier this week that OPEC could slash output quotas by 2.5 million barrels a day. But, again, there’s a question of whether or not Saudi Arabia will accept such a sizeable reduction.

“I don’t think we’ll see a 2 million-barrel cut, given the reaction that this will have both by the market and by politicians,” John Sfakianakis, chief economist at The Saudi British Bank in Riyadh, told Bloomberg.

Regardless of what Iran, Venezuela and others desire in the way of a production cut, the ultimate decision will rest with Saudi Arabia, which is the world leader in oil reserves, with about 260 billion barrels of oil in the ground. Iran is third with 136 billion barrels in reserves, and Venezuela is seventh with just 80 billion barrels.

Sfakianakis expects a 1 million-barrel a day production cut, Friday.

News and Related Story Links:

  • PFC Energy:
    Oil Market and Countries Strategies Group
  • BusinessWeek:
    Saudi Oil, OPEC's Ire.

  • Wikipedia:
    Hugo Chavez.

  • Wikipedia:
    Chakib Khelil.
  • Washington Post:
    Tough choices for Venezuela as oil prices fall
  • Bloomberg:
    OPEC Risks Split on Cuts as Economies Reel, Oil Drops
  • Money Morning:
    Saudi Arabia Hesitant to Join OPEC in Production Cut.
  • Wikipedia:
    Mahmoud Ahmadinejad.

Join the conversation. Click here to jump to comments…

Login
guest
guest
4 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
trackback
Trouble Comes Home to Roost for the “Bad Actors” of the Global Economy
14 years ago

[…] hard times. Venezuela is also facing the pinch – although this Latin American player found the benefits of $147 oil were so fleeting that even Venezuelan President Hugo Chavez had failed to spend up to his income (though a 26% […]

0
Reply
trackback
OPEC Left to Deliberate as Oil Prices Plummet
14 years ago

[…] Venezuela is the OPEC member least able to withstand the current drop in prices, according to a study by PFC Energy, an energy-consulting company. PFC says oil must be at least $94 a barrel to ensure Venezuela's economic stability and generate enough money to pay for imports. […]

0
Reply
trackback
Jutia Group - Market Jitters & Political Critters
14 years ago

[…] Venezuela is the OPEC member least able to withstand the current drop in prices, according to a study by PFC Energy, an energy-consulting company. PFC says oil must be at least $94 a barrel to ensure Venezuela’s economic stability and generate enough money to pay for imports. […]

0
Reply
trackback
OPEC Cuts Output by 1.5 Million Bpd as Oil Prices Slump
13 years ago

[…] Money Morning: OPEC Production Cut Up in the Air as Members to Clash Over Oil Prices […]

0
Reply
LIVE
Visit Money Morning Live


Latest News

January 19, 2023 • By Money Morning Stock Research Team

These Stocks Could Go To $0

January 9, 2023 • By Money Morning Stock Research Team

The Government Is Pouring $391 Billion Into These Stocks - Buy Now

December 27, 2022 • By Money Morning Staff Reports

6 IPOs in 2023 You Can’t Afford to Miss
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Penny Nation Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Vega Burst Trader Flashpoint Trader Darknet Hyper Momentum Trader

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell My Info

wpDiscuz