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OPEC To Announce Output Cut

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Unfortunately for the energy sector OPEC may talk up another big production cut at this weekend's meeting but analysts claim it won't be officially announced until the Dec-17th meeting in Algeria.

Oil ministers from OPEC countries can't get their stories straight and depending on the time of day you may hear that they will announce a cut this weekend, next month or not at all. The conflicting sound bites are killing any chance of their threat to cut production to have any impact on prices.

The latest story making the rounds calls for a consensus cut of another 1.5 mbpd to be decided this weekend but not officially announced until the Dec-17th meeting. Since the story is so widespread it would be stupid to think it was not already priced into the market. It would also be rather dumb to expect OPEC countries to actually follow through with another 1.5 mbpd cut. They should but here we are a month into the 1.5-1.8 mbpd cut they announced for Nov-1st and tanker trackers are just now claiming shipments have declined over 1.0 mbpd. If oil prices had not fallen under $50 I doubt we would have seen that much of a decline.

Venezuelan president Hugo Chavez said OPEC should return to a system of setting a price band for oil in order to guarantee market stability. He said Venezuela would consider $80 to $100 a barrel to be fair. It would not do any good to set the price if OPEC countries are going to cheat on deliveries.

Russia has also been making contradictory statements for the last month about joining forces with OPEC to support prices. They have said many times they would go it alone and remain independent with regard to their energy strategy. They also said they would never agree to cut production simply to shore up prices. On Tuesday Russian Energy Minister Sergei Shmatko said "we cannot rule out cutting production." Russia made a proposal to OPEC back in September for closer cooperation. That proposal stimulated talk of coordinated buts but they were quickly denied. Now, with oil at $50, Russia appears to be changing its mind. Sergei also said, "Russia will coordinate with OPEC to defend its energy interests." Russia is the second largest producer of oil and needs the revenue to support the government. Never say never or you may end up eating your words.

News flash, the World Bank said on Tuesday growth in China could slow significantly due to slowing exports. That sounds like a very negative statement until you read the next sentence. Growth could fall as low as 7.5%. This is down from 9.2% in 2007. Dang, ONLY 7.5% growth. That sounds like a real painful drop. This moderated growth in both China and India will continue to pressure oil production despite the decline to only 7.5% growth, which is about 7.5% more than any other country on the planet today. I am sorry but they don't get my sympathy.

Crude prices gave back nearly all of the $4 gain on Monday to close on Tuesday at just over $52. Nothing seems to be able to push prices higher but at least support at $50 is still holding firm.

Jim Brown

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