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OPEC cuts oil production by another 2.2 million barrels per day
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OPEC cuts oil production by another 2.2 million barrels per day

December 17, 2008 by · Leave a Comment
Filed under: Commodities News 

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This will catch up with us at some point, these short term prices drops that people are so happy about will have long-term repercussions on the U.S. oil market.  The problem we face is that when oil drips this low, oil production is now being brought offline because they will not produce it as a loss.  Also we are seeing investment in renewable energy being reduced at the same time.

This will all create a hairy situation once demand picks up.  In oil production you can not just “flick a switch” and bring it online.  This lag effect is going to create a major price swing in the price in oil.  In other words, these oil prices are just a short term phenomena.

News:

The Organization of Petroleum Exporting Countries, in a bid to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month.

OPEC hopes the cuts will stabilize prices, which have dropped by more than $100 a barrel since reaching a record high in July. The worsening economic downturn has sapped demand worldwide.

A production cut had been widely expected. Indeed, U.S. crude for January delivery fell $1.94 to $41.66 a barrel shortly after the announcement. Oil had been as high as $45.50 earlier in the day.

Oil prices have fallen rapidly in recent months due to “the repercussions of the financial crisis,” said OPEC President Chakib Khelil. “We are in a very deteriorating environment,” he said.

Source: CNN Money

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