The latest price floor to be broken is the US$40 mark; this morning crude oil traded for $38.85 in New York on, down $1.21 a barrel. Even though OPEC said they would cut production by another 2.2 million b/d, the price of oil continues to decline.
These days, OPEC produces 40% of the world's oil supply. It's not as much as the early 70's (53.9% in '73) when they had a stranglehold on the global supply, and therefore price. The upside of their diminished impact is that they can no longer hold the world hostage with high prices whenever they feel like it. The downside is that they can no longer effectively prop the price by cutting production. Even though Russia seems to have thrown their lot in with OPEC, even attending their meeting as an observer, the reality is that there is just too much oil production out of the range of OPEC's influence.
And the fact is that OPEC's "control" is not really much control anyways. At best, OPEC's decisions are mere recommendations to members who often feel free to go their own way if they feel the need. Think of OPEC oil quotas as something like NAFO fish quotas and you'll be in the right ballpark.
What's the real problem? It's simple - too few dollars chasing too much oil thanks to the dampened global demand for oil.
This is good new for those who still need to use oil but bad new for those who need oil revenues to fill big gaping holes in their budget. And for those who budget on the assumption of $87/barrel oil, it means a serious reassessment of budget decisions.
These days, OPEC produces 40% of the world's oil supply. It's not as much as the early 70's (53.9% in '73) when they had a stranglehold on the global supply, and therefore price. The upside of their diminished impact is that they can no longer hold the world hostage with high prices whenever they feel like it. The downside is that they can no longer effectively prop the price by cutting production. Even though Russia seems to have thrown their lot in with OPEC, even attending their meeting as an observer, the reality is that there is just too much oil production out of the range of OPEC's influence.
And the fact is that OPEC's "control" is not really much control anyways. At best, OPEC's decisions are mere recommendations to members who often feel free to go their own way if they feel the need. Think of OPEC oil quotas as something like NAFO fish quotas and you'll be in the right ballpark.
What's the real problem? It's simple - too few dollars chasing too much oil thanks to the dampened global demand for oil.
This is good new for those who still need to use oil but bad new for those who need oil revenues to fill big gaping holes in their budget. And for those who budget on the assumption of $87/barrel oil, it means a serious reassessment of budget decisions.
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