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OPEC is talking again; Should we be listening?
Dear American Capitalist Reader:
Here we go again. The 11-member oil cartel, known as OPEC, is talking about cutting oil production once again. If it feels like déjà vu, it’s not. The members want more money and they feel the only way to do it is to try and play puppet master with the price for a barrel of crude.
And, once again, we should ignore them.
To refresh your memory, OPEC members recently discussed a production cut of 1.2 million barrels a day to help trim supplies and, hopefully, increase the price for a barrel of oil. The production cuts were to commence on November 1st, but there hasn’t been any real evidence that the cuts have indeed taken place.
So, are the latest ramblings from OPEC fiction or fact? I say fiction.
Oil revenues have increased fourfold since September 11th for Middle East countries and these governments saw a flood of cash coming in when oil topped $78 a barrel in mid-July. Now that oil is trading in the high $50 range, countries like Iran, Nigeria, and Venezuela want the good times to continue. The problem for them, though, is nobody believes anything they have to say.
Considering some of America’s biggest enemies are members of OPEC, I find it refreshing to know that they have no credibility in an area that matters most: Money. The last time OPEC announced a 1.2 million barrel cut, Iran and Venezuela were expected to contribute to the total by a combined 250,000 barrels. Considering these countries want — and need — the cash, is there anybody out there with half a brain that really thinks they actually trimmed their production numbers?
No chance and this is why NYMEX traders could care less about what OPEC has to say. Even the most credible of OPEC members, Saudi Arabia, originally discussed a cut of 5% but then backtracked and decided to cut production by only 3.5%.
The cartel’s lack of leadership is another problem for the group, and unless OPEC’s most stable members — Saudi Arabia & UAE — announce significant cuts of the high single digit to low double-digits, nobody is going to care about an insignificant announcement about production cuts.
I will be on CNBC this morning at 10:15 a.m. EST to discuss this very topic with some of the finest oil traders at the Merc. I hope you have an opportunity to tune-in.
Sincerely yours,
Todd M. Schoenberger, Senior Equities Analyst
Diligent Investor
www.DiligentInvestor.net
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