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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Think4Yourself who wrote (47622)7/8/1999 11:25:00 PM
From: Rob Shilling  Read Replies (1) of 95453
 
I think OPEC knows exactly what it is doing. IMHO OPEC is going to plan to continue the cuts until March in order to erase a "glut" of oil that the IEA and EIA have calculated. When it becomes obvious that the "glut" was not as big as predicted, OPEC will enjoy the higher prices caused by fears that there will soon be a shortage of oil. Then, it is my guess that at the last minute OPEC will increase production to avoid a bubble in the oil market. From that point in time it will be obvious how much oil there really is in the world and OPEC will manage the price with series of small cuts and increases
There is debate as to what caused 1998's low oil prices (over supply, negative press by the IEA etc, or perhaps OPEC pretending to have discord). But the result has been huge damage to non-OPEC oil production and a shift of big oil to places like the middile east and Venezuela. That is a big plus for OPEC long term. OPEC will eventually be in the driver seat permanently when it comes to oil prices.
When you look at the big 2 mbpd cuts by OPEC that will obviously outlast any excess inventory out there, there seems to be logic behind these cuts. Effectively, OPEC will be able to first expose the actual amount of oil that is really out there, and second, to bring focus onto how accurate (or inaccurate) the IEA and EIA really are. Once OPEC moves to keep a shortage from happening it will be common knowledge that the day to day surplus or shortage of oil in the world will be only a small number (a few million barrels). This is a great alternate outcome for OPEC. Otherwise, there could have been conceivably only a actually small surplus of oil around for years and OPEC would be selling oil for artificially low prices for years because "the spin" is that there is a glut.
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