OPEC vs. Russia and Brazil -- production cuts vs. increased exports
Posted Apr 14th 2009 11:30AM by Connie Madon
There's trouble in the oil patch for OPEC. Over the past year, OPEC has cut production at least three times to bring oil production down and keep prices from falling below $40 per barrel. In fact, OPEC wants to bring the price of oil back up to $70-$75 per barrel. The big question is whether it is working.
Well, part of the plan is successful. U.S. imports from OPEC fell 818,000 barrels per day or 14% to 5.02 million barrels per day in January from a year earlier. But if you remember the old adage, "While the cat is away, the mice will play," OPEC's plan is not holding up too well. When OPEC cut production, Russia and Brazil jumped in and did the opposite, namely increase exports to the US.
Brazil more than doubled its exports to 397,000 barrels per day, while Russia increased its to 157,000 barrels per day. Russia even lowered its export duty to $15.00 per barrel from $15.70 per barrel. Russia has been trying to get a foot hold in the U.S. market for years, while Petrobras is very aggressive in its marketing policies and plans to spend $174.4 billion through 2013 on increasing production and exports.
So where are we now? Well, inventories have climbed to 1.65 million barrels in the week ending April 3, the highest level since July 1993. Supplies are 12% above the five-year average and the equivalent of 25.4 days consumption. The open interest on put options (betting on a price decline) for oil to drop to $40 a barrel rose 20% in the four days from April 3-9 to 24,503 contracts. OPEC wants the price to climb to near $61 per barrel this year, while traders are betting on the opposite move. All of this is against the backdrop that GDP will contract by 3.8% in 2009 in North America.
Do you believe that oil prices will drop this year? |
