[zoidberg]

Prices are dropping, so is output, planned apparently. Pardon me if this has been done already, but there's so many posts here. What if these Opec cuts are more a result of declining output and the price drop is simply reflecting dropping demand as a result of the oil shock we've suffered recently?

If this is true and production after the much anticipated US recession in '07 cycles out doesn't hit the 84-85 million bpd range again can we expect the super spike in prices in 08-09? And a subsequent depression?

Amateur economists sound out.

[Micki]

This has been discussed in several posts.
i.e. this one OPEC cuts - a coverup?
In short, there is the possibility but no evidence.

Some of the oil heavy weights like Matt Simmons concluded that it will take several years before we have confirmation that this is the case.

I have personally ticked off PO (even if there may be some fluctuation taking monthly production above previous high) pending evidence that extraction can be increased.

Reasons:
1) it is possible the price drop is a reason for capping production.
Oil price is however historically high and OPEC has indicated that they don't want to deflate demand. So capping at this high price seems suspicious.
2) SA has increased rig counts a lot and injecting water/CO2 and barely keeping up extraction. It also seems as if there is a growing % heavy oil.
3) The paper that floated around in Kuwait suggesting their reserves were only half the official figure. (Court case pending to attempt find out the truth.)
4) The number of large fields in decline.
5) OPEC removed the produciton cap at the last meeting. Despite this production figures seems to have gone down rather than up.
This decision was eeriliy similar to when Texas has peaked.

In other words nothing concrete, just a mounting suspicion.
So until proven otherwise I think this time we are on or just passed the peak.

Regarding your other points; there is actually little evidence demand is dropping. The timing (election) GS mods to index and JPM's 5 trillion $ increase in derivates just before NG drop point to a manipulated price drop rather than pure supply/demand.

$this->bbcode_second_pass_quote('', 'I')f this is true and production after the much anticipated US recession in '07 cycles out doesn't hit the 84-85 million bpd range again can we expect the super spike in prices in 08-09? And a subsequent depression?

[MrBill]

The oil industry in general is suffering from increasing costs from exploration, drilling, extraction, transport, refining, etc. all along their supply chain in terms of more expensive land, skilled labor, capital and intangilbles like developing new technology to drill deeper, in more inaccessible/inhospitable places, and to look farther afield for new discoveries.

That all costs money. And OPEC is no different. As a matter of fact they rely heavily on imported technology, oilfield personnel and foreign expertise to develop their production. Wars, conflicts and the security to deal with those disruptions also add to the costs while doing nothing to increase output. Just a cost of doing business.

It is no wonder that they feel compelled to defend a target price when they see the physical markets over supplied. Why drown the market in extra barrels of oil if there is slack capacity to turn it into refined products which themselves have a limited shelf life? It is like an overflowing bathtub with a plugged drain. The problem is the plugged drain not a lack of tapwater flowing into the bathtub in the first place.

It is my feeling in any case that OPEC production cuts are right for the market now to support their margins. And the world economy is certainly growing fast enough that it does not need cheaper oil at the moment. Consumers have proven they can withstand these higher prices. Even in the US total product demand is running 4.1% ahead of last year despite a slowing economy. So I see little reason for OPEC or other non-OPEC producers to destroy their market just to keep pumping to prove they can? That's my narrow opinion in any case. Thanks.