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Up yours, OPEC.

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Eli Weiss

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The OPEC powers are running around like wild chickens trying to control the falling oil prices, today they slashed a record 2.2 million barrels from its daily production, hoping to stabilize markets, but as welcome gift, oil has tanked even more, and crude oil sank to $40.20 a level not seen since the summer of 2004.

I wish all those terrorist sponsoring countries to go bankrupt very soon, and feel the taste of their own medicine...

OPEC cuts record 2.2 million barrels a day
Wednesday December 17, 1:37 pm ET
By George Jahn, Associated Press Writer OPEC cuts record 2.2 million barrels a day from output -- Russia keeps its distance from group

ORAN, Algeria (AP) -- OPEC on Wednesday agreed to slash 2.2 million barrels from its daily production -- its single largest cut ever -- while bloc outsiders Russia and Azerbaijan announced their own cutbacks of hundreds of thousands of barrels from the market.
"I hope we surprised you," OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. "If you're not surprised we need to so something about it."
And yet markets weren't impressed.
Crude oil sank to $40.20 after the announcement, a level not seen since the summer of 2004 and a clear sign investors are more worried that the world is heading for a long and painful recession in which energy use will continue to erode.
In just five months, crude has given up all of the price gains made over the past four years.
Making matters worse for OPEC, Moscow distanced itself from direct ties with the 13-nation producers' group, further dampening OPEC hopes of coordinated production cuts that might put a floor under crude prices.
OPEC said oil ministers of the 11 nations under the group's quota system agreed to take 4.2 million barrels a day off the market, but that includes two previous announced cuts that totaled 2 million barrels.
That leaves the new output reduction announced Wednesday at 2.2 million barrels, effective Jan. 1.
Still, even the record cut was unable to counterbalance consumers' concerns about the dismal world economy.
In the U.S., the world's largest crude consumer, the Federal Reserve's decision to slash its target interest rate to nearly zero buoyed global stock markets Tuesday and early Wednesday.
But the news on the U.S. economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.
The government reported Tuesday before the Fed rate announcement that home builders slashed production in November by 18.9 percent, the biggest drop in nearly a quarter century. That pushed activity down to a record low annual rate of 625,000 units as the woes in the property market, where the current economic troubles began, showed no signs of abating
Focusing on the shrinking oil market, OPEC noted in its statement that "crude volumes entering the market remain well in excess of actual demand."
"Moreover, the impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices," it said.
The group said "if unchecked, prices could fall to levels which would place in jeopardy the investments required to guarantee adequate energy supplies in the medium to long term."
In addition to signaling that a major cut was in the offing in the days leading up to the Oran conference, OPEC ministers had expressed hope that Russia -- the No. 2 producer after Saudi Arabia -- would join in a significant cutback that would bolster prices.
Such support would be significant. Non-OPEC members Mexico, Norway and Russia last slashed production in the late 1990s, at a time oil was selling for about $10 a barrel.
But although Russian Deputy Premier Igor Sechin and Azeri Energy Minister Natik Aliev announced cutbacks of a total of more than 600,000 barrels a day, their commitments appeared largely symbolic.
The Russians indicated their reductions had already been implemented in November, while Azerbaijan's output had already been reduced by about a third due to production problems earlier this year.
Among those hoping for Moscow's support was oil powerhouse Saudi Arabia.
"We also hope that other producers who are not in OPEC will chip in for the purpose of bringing stability to the market," said Saudi oil minister Ali Naimi said, in a nod to Russia.
Sechin, in comments to The Associated Press, said "Russian oil companies have already made a decision to cut deliveries to the market ... approximately equivalent to 350,000 barrels per day." But he specified that his country's cuts had already been enacted ahead of the OPEC meeting.
Sechin did hold out the possibility of further reductions, saying Russia was ready to pare another 320,000 barrels a day "if we see the continuation of the current level of prices on the world oil markets."
But with Russian production falling, due in part to lagging investment, it was unclear whether some of the cuts enacted or proposed were simply a way of packaging Moscow's inability to keep up present output levels. Even before Sechin's comments, Russian output -- now close to 10 million barrels a day -- was expected to decline by 1 percent this year and by around 2 percent in 2009.
That -- and the fact that Russia was announcing reductions already enacted -- diminished the significance of its move.
Sechin's vague comments on further cooperation with OPEC -- he mentioned plans for possible "permanent observer status" without specifying what that meant -- also signaled Moscow's reluctance to trade its traditional independence for closer ties with the 13-nation producers' group.
Sechin did not rule out full membership eventually, but said, "We are not rushing." A member of the Russian delegation who asked for anonymity because he was not authorized to comment was blunter, saying his country had no interest in joining OPEC.
OPEC President Khelil sought to cast a positive light on the Russian moves, suggesting that while Russia might rethink membership it was a sovereign country that can "cut maybe more strongly or less strongly -- or maybe (do) nothing."
"We cannot tell them, you know, what to cut, and how to cut, and when to cut. They have to make their own decision."
But the Russians "are probably going to change their minds in the future and become full members," he said.
Azerbaijan's Aliev said his country "will support the OPEC cuts," slashing up to 300,000 barrels a day from the country's output. That would be more than a third of total production for the country on the oil-rich Caspian Sea.
Still, Azerbaijan's proposed cuts may be involuntary. After an accident on the main BP pumping platform in October, oil industry analysts say the country's output has dropped to around 500,000 barrels a day -- the level Aliev was proposing at Oran.
Associated Press writers Angela Charlton, Alfred de Montesquiou and Adam Schreck in Oran contributed to this report.

http://biz.yahoo.com/ap/081217/af_opec_meeting.html
 

Eli Weiss

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Update: its dropping even more.....

NEW YORK (Reuters) - Oil prices dropped 8 percent to their lowest in more than four years on Wednesday after OPEC announced a record supply cut that dealers said may fail to offset slumping world energy demand.
U.S. crude oil prices fell $3.61 to $39.99 a barrel by 2:30 p.m. EST, the first time below $40 since July 2004. London Brent fell $1.20 to $45.45.

http://finance.yahoo.com/news/Oil-slides-8-percent-as-OPEC-rb-13858869.html
 

Steer

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Those Ba$tards!!!!
 

Viking

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Cheap oil & gas may be good for the economy in the short run. But to attract investment in conventional and alternative energy, prices must be high enough to justify the investment. Right now there is less money going into oil & gas exploration, wind farms, ect. This could lead to another big price spike in a year or two, maybe less. We failed to solve the energy problem in the last few decades due to lack of incentive because oil was cheap. And we were not motivated to conserve energy.
 

Greg Bell

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Thank god energy is dropping.Maybe those silly wind farms and all that goofy global warming baloney will die a natural death.We are up to our you know whats in oil and
coal , burn baby burn..well gotta go fill the hummer...
 

Viking

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Thank god energy is dropping.Maybe those silly wind farms and all that goofy global warming baloney will die a natural death.We are up to our you know whats in oil and
coal , burn baby burn..well gotta go fill the hummer...




OK, let's just do more of the same importing, that will sure teach OPEC!
 

Restrain

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Obama said today that we weren't going to survive on drilling but in the fields, as he announced the Sen from Colorado (who opposed more drilling) as the Head of the Ag Department.

Prices will go up and up unless people pressure their representatives...again.
 

Terrel L. Shields

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Cheap oil & gas may be good for the economy in the short run. But to attract investment in conventional and alternative energy, prices must be high enough to justify the investment.
Exactly. Just heard another story where a wind mill (one single big windmill) was responsible for the death of 188 bats in one night....most were not hit by the blades but rather flying close to the blades caused a sudden lost of air pressure which appears to have caused a sudden inflation of their lung sacs which burst blood vessels and they die of internal bleeding. Solution? Not let the windmills run at night. hmm. Yes, Obama has picked an interior secretary that will almost certainly block much if not most of the drilling in the Public lands of the Rockies.

Enjoy the cheap oil while we can. Obviously, we have no substitute for oil or gas and the triple whammy is upon us. Solar and wind is being slammed for environmental reasons and their stock has plunged since peak oil prices in July. Expect to see oil prices in the $30/bbl range for a while but also expect that not to last long. Any revival of the economy will result in sudden price spikes. Domestic companies are also in deep deep trouble. Their stock prices are falling. They have hedged and booked reserves that will have to be "Marked to Market" in January, reducing book value of people like Chesapeake, Devon, Apache, and other domestic producers. Once those reserves are reduced in value on their books, the banks and hedge funds will be in a panic and liquidity for the gas companies will collapse. They will stop drilling. 42% of this nations natural gas is being produced by "resource plays" - The Barnett, The Fayetteville, The Marcellus, and the Haynesville are the biggies. Those wells deplete rapidly. If you shut drilling development wells down, then the reserves of gas in the U.S. will plunge at a decline rate of 50% or more. Within 18 months you will have a crisis on your hands. Prices will skyrocket, crimping the economy once again.
Oil prices should never have gone to $140. Hedge funds should have been curbed. Naked short sales abolished. The SEC is a total failure at regulation. But 'cheap' oil isn't a panacea. It won't revive the economy. Its a timebomb waiting to pounce on us again...$30 is too cheap, $70 is reasonable and would be high enough to keep investment interest in solar and wind power.

As for the Arabs....yep, they get hosed in the short term...Long term, they still own the oil and we still gotta buy it or walk. Nobody is going to invest in alternative energy that is twice or more expensive that what the remainder of the world will be consuming in competition with us.

As the song says, "drill here, drill now" Obama has placed an Interior Secy in that will make us ever more dependent upon foriegn sources of energy.
 

George Hatch

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I'm not entirely sure I understand the dynamic, but the recent drops in price kinda remind me of what happens when the beef producers are being driven out of business. If pricing drops below their cost to produce they are forced to sell their beef as distress prices (good for the consumer in the short run) on their way out. However, once they're out they're out and they no longer continue to contribute to the supply. Curtailing supply makes the prices go up (bad for the consumer in the long run). Eventually the rising prices will continue to go up until they spur "new" production capabilities that look just exactly like the producers that previously got driven out due to low prices.

The "true price" of oil for 2008 should probably be calculated on the annual average.
 

Terrel L. Shields

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The "true price" of oil for 2008 should probably be calculated on the annual average.
The oil bubble isn't a new phenomena, but the current bubble is reminescent of the mortgage bubble. Too much, too fast and the people driving it (Hedge fund investors) had nary an idea what they were doing. Many will lose huge sums of money once the 4th Q results are in. A lot of Hedge funds will fold (like SemGroup already has). The companies will be under enormous pressure. They have to continue drilling the huge acreage positions they took or lose their investment. Much of the Barnett and Fayetteville plays were leased for 3 - 5 years in 04-05. If those leases don't get drilled, they expire...a wasted investment. The major oil companies are waiting in the wings will all that "windfall" profit congress wanted them to squander back in the spring on pie in the sky projects. They will use their cash to buy existing companies that are in financial straits. In fact, the cheapest "drilling" BP and Exxon-Mobil are going to do will be in the stock exchange. They will be buying reserves for less than $1 per MCF and oil from maybe $10 - 20 per barrel in the ground. They cannot buy overseas reserves. The countries, not the companies own them. But they can buy US properties.

The "Beef" analogy is a good one because producers (ranchers) take a hit, but the people in line to make the real profit are the beef processors which are only a few large companies. They stand to make huge profit margins once supply is tight and they control the cattle feedlots with below market pricing.

You can also bet that with infrastructure needs as a part of the Obama plan to pump money into the market, we will see a gas tax rise, maybe on the other of 25¢ per gallon or more...the time to tax is when gas prices are low.
 
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