Hey, guess what? OPEC has decided to cut oil production by 1.5 million barrels a day to get them prices back up! Sorry, no link. Just saw it on CNN 20 minutes ago.
Didn't work.... Crude closed lower again.
Several facts actually work against OPEC.
First; OPEC represents only 40% of the oil producing nations.
Second; many in OPEC cheat on the quotas, pumping more than they agreed to.
Third; Iran and Venezuela are the two members most hurt by sub $70 crude (cry me a river).
Fourth, higher prices will only drive down demand more, soon resulting in even lower prices down the road.
Fifth; $140 oil contributed in no small measure to the current world-wide recession.
Sixth; $140 oil has pushed western nations further towards alternate fuels and technologies, which will drive down demand even more in coming years.
Seventh; The US has at least 2 trillion barrels of shale oil in the ground in the plains and upper plains. That's enough for future US needs for at least 200 years (but remember, demand for crude will drop considerably in the US over the next decade). This oil is expensive to extract, but it's there and getting it out of the ground in considerable quantity would take between 5 and 8 years. This excludes about 400 billion barrels known to exist offshore or up in ANWR, and who knows how much is not yet discovered.
OPEC will gain nothing long-term by cutting production. This realization is dawning on them as they announce production cuts and the price of a barrel of crude
still drops. Some economists believe that the global recession will continue as long as 5 years. If that is accurate, don't expect any major increase in oil prices for at least 7 years (excluding some vast natural disaster or a major war). Oil as the predominant fuel sang its swan song this year. OPEC's party now has a curfew.
My regards,
Widewing
