While “Oil Plunges” OPEC Wants Stability
September 27th, 2006 by Grant in: Energy, Oil & GasThe other day I wrote a post about how consumers are labeling the latest drop off in oil prices as a “plunge” of a whopping $12 per barrel, even though this type of retracement is typical for this time of year.
Now, the market is propping up the price of oil once again due to speculation that OPEC may cut production to allow the price to stabilize.
“Something needs to be done to steady the price…” - Edmund Daukoru, OPEC President (Source)
Oil prices have dropped recently because of cooled tensions over nukes in Iran, higher supply in the U.S. and lower demand going into the fall.
I can see oil falling a little further to around $56 per barrel before it starts heading up again, but it appears that the oil cartel is trying to create a base at around $60 by any means possible.
“In the event of renewed weakness, we may see the cartel first try to talk the market higher, and failing that, call a meeting to announce a cut,” said Edward Meir, a commodity analyst at Man Financial Ltd. in Darien, Connecticut
This tells me that $60 is the new $30, and we should expect prices to stay high not because of uncontrolled demand, but because of controlled supply.
In a sense, I see this as a good short-term move by OPEC to prod along development of alternative fuels. While this might not be their reasoning for keeping prices high, it will certainly be the effect should they get their way.
And if you’re a believer in “Peak Oil”, a cut in production will stretch existing reserves out further in the future…
Additional Resources
Crude Oil 3-Year Chart
Strategic Oil Reserve Inventory
Current Oil Futures Prices
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October 2nd, 2006 at 10:11 pm
[…] Now that oil prices are “plunging”, there is less money being dumped into U.S. securities that hold down long term rates. Unfortunately, there isn’t much the Fed can do about it as they only control overnight rates. A problem former Fed Chairman Greenspan calls a “conundrum”. […]