Oil Prices Plunge Despite OPEC Cuts

1.5M Barrel-A-Day Cut Is Effort To Stem "Dramatic Collapse" Of Oil Prices

(CBS/AP)  An OPEC attempt to stem the free-fall in oil prices fizzled Friday with crude plunging to lows last seen 15 months ago on world economic fears, despite the 13-member group's decision to slash production by a daily 1.5 million barrels.

Oil's imperviousness to production cutbacks - the most potent weapon in the OPEC arsenal - reflected the cartel's diminishing control over prices. And the language of an OPEC statement announcing the cut reflected how seriously it viewed the erosion of its revenues, as did the unusually short deliberations leading to the decision.

"Oil prices have witnessed a dramatic collapse - unprecedented in speed and magnitude," said the 13-nation organization. "This slowdown in demand is serving to exacerbate the situation in a market which has been oversupplied with crude for some time."

It also warned of further hard times ahead for suppliers, saying "the fall in demand will deepen" in the coming months.

While OPEC presented a united front at its emergency meeting Friday, a lot of the member countries are deeply unhappy about this planned production cut because it means a serious drop in revenues for them, reports CBS News correspondent Elizabeth Palmer.

"I think the united front is obviously a political stance," Francisco Blanch of Merrill Lynch told CBS News. "I think the numbers reflect a different story and it's going to be pretty difficult to implement these cuts."

In other words, some OPEC members will simply ignore Friday's agreement and keep on pumping.

In more orderly economic times, any Organization of Petroleum Exporting Countries move to reduce output led to an upward spike on fears that demand would outstrip supply. But Friday's oil market reaction reflected present realities; with the financial vortex sucking the U.S. and other major consumers into recession - and even China's and India's booming economies slowing - even less oil at lower prices will have trouble finding a buyer.

"The power to influence oil prices is moving farther and farther away from OPEC," said oil trader and analyst Stephen Schork. "Everyone thought China and India would go on buying oil forever, but that's not the case.

"The demand is no longer there," said Schork. "I think people fooled themselves when they said emerging markets could weather a U.S. downturn. That's yanked OPEC right out of its role as the key player."

Steeply dropping world stock markets that reflected fear of a global recession proved the dominant influence on oil markets, sidelining any OPEC hopes that its steepest output cut in five years would remedy crude's plunge.

Major European bourses that were down more than 10 percent during the day improved by closing time but still suffered losses as high as 5 percent. Asian stocks also closed sharply down. Russia's two exchanges were shut down early because of double-digit losses and officials said they wouldn't resume trading until Tuesday.

On Wall Street, the Dow Jones industrials were down 400 points well into the trading day.

Benchmark crude futures were trading at US$64.60 a barrel on the New York Mercantile Exchange after falling as low as US$62.85 earlier in the day, shortly after OPEC announced its cut, to take effect starting next month.

Crude prices have now fallen 56 percent from the highs reached in July, and more than US$41 per barrel in just the last 30 days.

Reflecting the huge demand slump facing OPEC, a U.S. Department of Transportation report released Friday showed the largest monthly decline in miles driven in 66 years.

Americans drove 5.6 percent less, or 15 billion fewer miles, in August 2008 compared with August 2007 - the biggest single monthly decline since the data was first collected regularly in 1942.

In terms of overall use, the latest weekly report from the U.S. Department of Energy shows that crude demand has fallen in 38 of the past 42 weeks. U.S. demand is down nearly 10 percent during the past four weeks year on year.

The figures are significant because the U.S. still consumes one out of every four barrels of oil produced.

The 11 OPEC nations under quotas are already producing more than their allotments - overall output from them is about 300,000 barrels a day past the stated OPEC daily target of about 29 million barrels.

So if they stop overproduction, and comply with the 1.5-million cut agreed on Friday, OPEC should end up producing about 1.8 million barrels less a day.

But against increasingly alarming economic developments not only in America but in most corners of the world, even an OPEC cut closer to 2 million barrels a day is unlikely to turn near-term prices around.

The cut reflected a compromise between OPEC members such as Iran and Venezuela, which were looking to yank up to 2 million barrels a day off the market, and oil powerhouse Saudi Arabia and its Gulf allies that are more open to U.S. appeals for plentiful crude on the market.

It also tried to balance OPEC members' concerns over eroding revenue with demands from the U.S. and other major consumers for affordable crude.

But the U.S. criticized the move.

"It has always been our view that the value of commodities, including oil, should be determined in open, competitive markets, and not by these kinds of anti-market production decisions," deputy press secretary Tony Fratto said Friday. "The high oil prices from the past year contributed to the slowdown in demand and the subsequent downturn in the economy, and we would ask that everyone keep that in mind going forward."

Still, OPEC officials left no doubt that they were ready to slice deeper quickly if Friday's decision does not end the price free fall.

Friday's meeting was called unexpectedly in response to prices that have entered a tailspin since their historic high of nearly US$150 in July. OPEC President Chakib Khelil said OPEC was ready to convene another emergency session before its next planned gathering in December in Algeria "if there are further decisions that have to be made" on slashing prices.

"It's clear that the ministers are attempting to underpin at US$60 a barrel," said James R. Crawford an analyst with Inter Emirates. "But where the market will settle remains open."

But in an economic downturn, where demand for oil is already plummeting, analysts think that will send the price plunging even further - to $50 a barrel, reports Palmer.

In an appeal to Russia and other major oil exporters outside OPEC, the oil ministers meeting in Vienna indirectly urged them not to undercut their efforts to prop up prices.

"OPEC cannot be expected to bear alone the burden of restoring equilibrium," said the statement.

OPEC Secretary-General Abdullah El-Badri said before a meeting with Russian President Dmitry Medvedev on Wednesday that he would not ask Russia for oil production cuts as global prices fall. Some analysts have said Russia was unlikely to agree to production cuts, given that it already is battling with falling output as West Siberian oil fields mature.

But others spoke of behind-the-scenes negotiations between Russia and OPEC on the issue.

El-Badri took pains Friday to emphasize that OPEC's move was predicated by a need not to raise prices but to put a floor underneath them. Iran, Venezuela and other OPEC members have suggested that, for them, selling oil under US$80 was a loss-maker, and Iraq said Thursday it would have to rethink next year's national budget if prices remain under that level.

El-Badri said OPEC could not be expected to solve the world's financial crisis - something the organization did not cause and could not cure.

"OPEC cannot bail out the problems of others," he said.

[HoneeyPooooh]

Does anyone regulate OPEC?! To actually announce its plan to cut oil production one month advance is a little too much power. This is all in an effort to raise oil prices back to an all time high when the average ''Joe'' (and Jane) already struggles to even travel only when necessary. OPEC should be fined, after all weren''t the gas suppliers and gas stations fined when they were found to be gas gougling?!

[captech30]

Oh, poor OPEC. I feel so sad that you are losing money. Yeah, you reaped record profits from your oil, and now you can''t pay your bills. Hmmm, now you know what it''s like to be us. :)

[toolmangler-2009]

Let them cut out production completely, I can tighten my belt tighter than they can, I am use to it, they aren''t.

[dbaecht]

"Remember people, this is an election year. The Feds have to look like they care so they will look into this and that and the other then , quietly about 6 months after the inauguration all of this will go back under the rug till next election. it has been like this as long as I can remember (and thats a long time)

Posted by ToolMangler"

We can hope that maybe things have changed enough that this will change.
One thing for sure if we get McSame nothing will change, if Obama gets in we might get some results.
All we can do is hope.

[dbaecht]

There are two groups that need to be Tared and Feathered and run of of this planet on a rail.
Oil company owners and speculaters. The petro- terrorist are next on the list.

[toolmangler-2009]

I posted this many months ago, it is still 100% true.


"If they (the stock holders) wanted this war to end, they would simply sell all stock from any country that promotes terrorism and make it widely known why they won''t own it. Since they have not then either they are the most stupid or scared people on the face of the Earth or else they started the war to boost prices (stock). If you find a politician that has no ties to Big Oil, vote for Him/Her. If they own Oil Stock, then Oil owns them. Its that simple folks."

[toolmangler-2009]

"Feds Probe Possible Oil Price Manipulation"


Remember people, this is an election year. The Feds have to look like they care so they will look into this and that and the other then , quietly about 6 months after the inauguration all of this will go back under the rug till next election. it has been like this as long as I can remember (and thats a long time)

[toolmangler-2009]

Wait, I forgot the best part! This is after they reported that their profits were only $222 million dollars last quarter! They were expecting more, but profits were down because consumers were using less.
How do you print the sound of someone screaming?
Peace
Posted by berniepeders at 09:57 AM : Oct 25, 2008


Ford, Chrysler, GM, Exxon, BP, and many others have been doing this all my life. Forecast a profit of 15% publish a profit of 10% and ''viola'' a net loss of 1/3 for the year. (this allows for all kinds of Corporate hanky-panky at tax time).

[toolmangler-2009]

DEREGULATION= GREED
Posted by dbaecht at 12:54 PM : Oct 25, 2008



Absoposislutely!!!!

[dbaecht]

DEREGULATION= GREED

[dbaecht]

"Someone explain this to me: Here in Minnesota, there has been a drop in consumer use of electricity, people are just using less, so what does Xcel Energy, the producers of the electricity, do? They apply to the Public Utilities Commission for a rate increase! How''''s that? You people are using less of the product we supply, so our income is down, so now you have to pay MORE for what you''''re using LESS of? Is it just me, or is someone getting s-c-r-e-w-e-d here?
Peace

Posted by berniepeders"

It''s called DEREGULATION

[pjh822]

I weep for you, OPEC...NOT!!!

[gheemaster38]

Since the price of oil is down why are we still paying almost 3 bucks per gallon? Why is it that the price per barrel can increase by 25 cents every 5 minutes when the weather gets bad but when the prices drop we get like, 6 cent price drops every 2 or 3 days? I say it should have a dramatic drop of 1 more buck... RIGHT NOW!!

[hypnotoad72]

Someone explain this to me: Here in Minnesota, there has been a drop in consumer use of electricity, people are just using less, so what does Xcel Energy, the producers of the electricity, do? They apply to the Public Utilities Commission for a rate increase! How''''s that? You people are using less of the product we supply, so our income is down, so now you have to pay MORE for what you''''re using LESS of? Is it just me, or is someone getting s-c-r-e-w-e-d here?
Peace

Posted by berniepeders at 09:52 AM : Oct 25, 2008
---

Quite. You''d think getting their big stadium with enough lights to keep them bathing in money would be enough...

Still, we can pretend any rate increases will go to build more windmills. That sort of Don Quixote thinking would certainly keep Don Quixote content...

[berniepeders]

Someone explain this to me: Here in Minnesota, there has been a drop in consumer use of electricity, people are just using less, so what does Xcel Energy, the producers of the electricity, do? They apply to the Public Utilities Commission for a rate increase! How''''s that? You people are using less of the product we supply, so our income is down, so now you have to pay MORE for what you''''re using LESS of? Is it just me, or is someone getting s-c-r-e-w-e-d here?

Wait, I forgot the best part! This is after they reported that their profits were only $222 million dollars last quarter! They were expecting more, but profits were down because consumers were using less.
How do you print the sound of someone screaming?
Peace

[berniepeders]

Someone explain this to me: Here in Minnesota, there has been a drop in consumer use of electricity, people are just using less, so what does Xcel Energy, the producers of the electricity, do? They apply to the Public Utilities Commission for a rate increase! How''s that? You people are using less of the product we supply, so our income is down, so now you have to pay MORE for what you''re using LESS of? Is it just me, or is someone getting s-c-r-e-w-e-d here?
Peace

[thepitbull13]

"The price of oil is adjusting to its fair market value. The reason is that the speculators have dropped out (they got burned big time) and are waiting for the bottom before getting back in."
__________________________
Speculators are still there and they also make money when the price falls. And it really would not matter if oil was traded in Euros or dollars because all global currencies are dropping. The first sign that prices started to drop happened when the US ban on oil exploration expired in early Oct. signalling to the speculators that supply could be boosted. Then separately global stock markets started to plummet, currency values fell. The economic mess will straighten out, but we as Americans should insist that congress investigate exact reasons banks failed (I have my own ideas-govt forced subprime lending practices) before we throw money at the problem. Until we find out why they crashed, we should not had out cash to these institutions only to continue the same behavior that got us into this mess.

[berniepeders]

At a $1.50 a gallon for gas, the oil industry had record profits.... All of this because of the greed of the oil companies! Posted by hunterdon6

Very well stated. I couldn''t agree more, and I''ve been trying to tell my friends the same thing for a long time. Too bad more people, especially those in a position to change things, didn''t see this coming. Well, they probably did, but they were getting rich too, so they did nothing to stop it.
Peace

[omnibus66]

The price of oil is adjusting to its fair market value. The reason is that the speculators have dropped out (they got burned big time) and are waiting for the bottom before getting back in.

Wall Street speculators are the ONLY reason we have been paying obscene prices for energy, with the complete blessings of our government.

[hunterdon6]

At a $1.50 a gallon for gas, the oil industry had record profits. Then they kept raising the price and keep getting record profits over record profits. And it continued to where it was $4.50 a gallon in some areas. This took a whole lot of money from the average persons paycheck. They could no longer afford new furniture, so furniture companies went under. They couldn''t afford to eat out as often, so record number of resaurants are going under. They can''t afford new cars, so car companies are laying off workers by the thousands. Then the people couldn''t afford to make their house payments, and we have a record number of people losing their houses. All of this because of the greed of the oil companies!