What’s Up?? OPEC Agrees To Production Cuts Yet Prices Are Down!

A funny thing happened last week on the way to the oil market casino. The Organization Petroleum Exporting Countries (OPEC) , agreed to cut its daily output by 4.4 percent or 1.2 million barrels a day starting November 1. The leading proponent for this surprisingly large production cut (1 million barrels had been anticipated) was spearheaded by Saudi Arabia who agreed to shoulder 380,000 bbls/day of the cutback.

Worse, it forecast more to come. As its oil minister, Ali Naimi threatened upon the conclusion of Thursday’s meeting “the possibility of another cut is there” .

It didn’t take long for the media and energy analysts to weigh in. The Financial
Times, ever looking for ways to rationalize rising oil prices predicted,
“The news is likely to push oil prices sharply higher this morning”. Cambridge Energy Research Associates, ever a leading singer in the higher oil price cantata, proclaimed “…sometimes OPEC can surprise. The market is going to be caught off guard today by this decision”.

But Friday, miraculum dictum, something unusual happened. Not only did the spot market prices not go up, they actually fell by $l.68/bbl or 2.7%! For once the oil consuming public long conditioned these past years to react with Pavlovian obedience to every OPEC and oil industry’s pronouncement that peak oil is at hand, that oil will soon be running out, has, at last, taken a different tack. Why? I believe the market is finally recognizing that oil at current levels is not scarce. This post has long argued, that the oil industry has used the “shortage fiction” to ratchet up oil prices to undreamed of heights. What might, just might, be true at a $10/bbl price point has no basis in reality at the current price level, nor even near current level of oil prices.

Huffington Post