POLL: How much will OPEC Quotas be cut on Friday?
Posted by Gail the Actuary on October 23, 2008 - 10:16am
Between 0.5 and 1.4 million BPD
28% (333 votes)
Between 1.5 and 2.4 million BPD
36% (422 votes)
Between 2.5 and 3.4 million BPD
5% (64 votes)
3.5 million BPD or more
4% (45 votes)
There will be cuts, but it won't matter because countries will continue to produce as before.
25% (288 votes)
No cuts
2% (22 votes)
Total votes: 1174
“We have only two modes—complacency and panic.”
—James R. Schlesinger, the first energy secretary, in 1977, on the country's approach to energy
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"There will be cuts, but it won't matter because countries will continue to produce as before."
But not necessarily "as before", but as suits individual producers.
One choice missing: There will not be any cuts at this time.
David
I added a no cuts option.
Sorry to the early voters, who missed this option.
Can you add the "Ralph Nader" option? That's the one where the question itself doesn't make sense.
I'm not being disrepectful here, but thinking along the lines of Taleb's argument - where it is much much easier to know where something is off-base than it is to know what is right.
Well speaking of Mr safety, like the ball bearing industry during a recession, the oil & gas industry should take advantage of the low flow and start putting some of the out of work "automotive workers" to help restore the rusting oil infrastructure.
Thats my 2 cents worth. tallent 2 B tapped!
Oilcan
Instead of cutting supply what OPEC should do is just list their oil contracts on the exchange at a price that is above the current spot price.
Speculators can continue to sell oil short all month but at the end they will need to buy some of those real oil contracts in order to deliver to real consumers of oil and they will be forced to buy up the OPEC contracts.
I read some months ago that the IEA when they release this year's "World Energy Outlook" in November will for the first time take a hard look at oil reserves - the supply side. Previously they reportedly focus mainly on demand side and assume supply will always cope and titrate up or down to demand.
This may mean they downgrade OPEC oil reserves such as Saudi. If so - won't that lead to a sudden spike again in oil price?
Then again maybe the IEA won't do this. Anyone know?
However - could OPEC countries like Saudi change tack and actually welcome more honest appraisal of their reserves - as it should put a much higher floor under the price.
I don't expect the oil prices to be determined by reserves but by actual production and demand.
However this should have an impact on the stock market valuation of energy and energy dependent companies. For example if a revision of estimated reserves signals that "oil has a limited future" this may prompt more government policies toward conservation and accelerated post oil transition. This is turn will impact the outlook of several corporations.
One possibility is that the IEA makes a step in the right direction, without going too far. The may increase the decline rates used in calculations, but still keep the difficult-to-believe reserves for the Middle Eastern countries, for example. This would make estimates come down a little, but not too much.
We won't know for sure until November 12. My guess is that it is only a partial step.
Most people seem to think that oil "reserves" are tangible and measurable, akin to putting a measuring stick in a tank. I have spent the better part of 40 years as a petroleum engineer putting together oil and gas reserves estimates, or working with other engineer's estimates of reserves.
In fact, all reserve calculations are estimates only, and may or may not be accurate within an error range, which may itself be quite wide.
IMO, no international agency or organisation has sufficient data to make other than a reasonably informed estimate as to the most likely reserves from each country. For various technical reasons, even if the most perfect information was available, it is doubtful whether OPEC's most likely oil reserves could be computed within +/- 10%.
Because of the scarcity of data and the suspect reserve estimates provided by most state-owned oil companies, it is highly unlikely that any estimate of OPEC's total oil reserves could be made within an error range of +/- 20%.
I don't believe that the oil markets factor in any reliance on what OPEC's reserves actually are, in setting today's, next month's or next year's oil price. Whether or not the IEA changes its estimates of reserves for Saudi Arabia or any other country will likely have no impact on OPEC's production quotas, on actual OPEC production, or on the price of oil.
Don't tell us, tell the OPEC oil ministers. They're the ones who publish their reserve numbers and base their production quotas on them. We only use reserve estimates to write articles, they base entire economies on them.
I ve been waiting for a post to make this historical observation. The oil business started with a product that came out of the ground in abundance, to the point where it flowed into ditches and water supplies. In some cases, this was intentional as neighbouring licenses vied to maximize primary production, before it was called primary or even really understood at all.
This has two implications for the business. The first is that Big Oil has always been fixated on sales and marketing. This means exploration and development have suffered a genuine historical deficit. Think of both XOM and KSA. This also explains some of their behaviour toward reserve replacement and, in the case of KSA, reserve estimates.
The old paradigm of surplus capacity was entirely genuine. The pressure to place unwanted suplies was, at source, geological. Has it changed? Not really. Not until a genuine peak pushes capacity lower than demand for a period of time sufficient to reduce stocks until stocks are gone. In the absence of buffer stocks, we are going to see big fluctuations at the margin.
This also explains the IEA's unusual approach to demand and supply: That oil demand creates supply. It's an odd reversal of the normal economic balancing act, where supply and demand have separate and distinct causes. Lest we of TOD forget, this school of thought is still very much in ascendance in KSA, USA and a surporising number of other places that should know better (the UK...).
Most consumers believe there is effectively unlimited supply, constrained only by capital and regulatory constraints. I believe early surplus will cause later shortage and that this observation is as true for the short run as it is for the long term. It is founded on historical fact.
The alternative - conservation and prudent management of oil and gas as the king of all energy resources - is unthinkable because it requires short term sacrifice of all kinds: Risky wildcat wells, inceased energy costs, reduced levels of growth. A sensible policy would do things like risking a few caribou to have some extra capacity to keep prices from gyrating so much and slip a few pennies into product prices in taxes to provide a floor when they drop preciptously. You'll never get elected! No wonder con-rucopians rule.
(caveat: new member, short-time lurker with a cynical view of the world and no knowledge of the energy industry)
I think minimal cuts, but it probably doesn't matter that much anyway. The important thing is that oil will stay low (er) long enough to reverse lifestyle changes and foil green initiatives fomented by high gas prices. At which point it will go back up, leaving us hesitant to make any significant changes to our lives because of the mysterious and unpredictable forces that act on the price of oil.
Maybe that's just me projecting, or whatever the phrase is for "everyone thinks like me"
oops, we (the world) have cut back.
so who will cut how much.?
(at the meeting)
how much must I cut ,says the OPEC members.
Argument. on and on. A lost ship at sea , with no rudder.
end of meeting,
or
some hollow words that all cut 2% and no promise for how long.
either way, same result. Glut.
"so who will cut how much.?"
The highest cost producers will cut until the marginal producers cost is 67$ a barrel. This might be a overshoot on the way down and several perturbations until equilibrium. (Which won't last long -- according to peak oil prediction.)
I don't think that OPEC quotas will matter much because the rapidly falling oil price must be doing a number on their budgets. A state with a budget that is going into the red is not likely to follow quota limits.
So the globe has cut back on consumption some, we're still addicted. The volume of oil exported from any individual OPEC member as well as Russia is probably too much for the rest of the world to forgo. If OPEC breaks down and can't agree on cuts or follow them, then there is incentive for covert attacks on each other's production capacity. Even if caught, it would be tough to punish some of the exporters.
How much would it cost to seriously disrupt Nigerian production? Venezuela? Iran? Lot's of opportunity for making it look like someone else did it.
I'm not big on conspiracy theories, but I'm also not afraid of exercising a little imagination, evaluating risk, and taking appropriate precautions. I can't figure out the risk of this scenario.
Listening to CNBC Worldwide Exchange just now, the answer is 1.5 million.
Oil Falls Below $65 After OPEC Cuts Output
Good job they did not opt for a 3 million bpd cut otherwise oil would have dropped to under $30 a barrel.
Goes to show how useful the Wisdom of the Crowds metric is
That's the way I saw it too.
I don't want to be Mr Grumpy, but I'm not sure why this poll was needed'tho ...
I got this one wrong. I thought they would delay a cut. Now we can blame them for the recession.
The $65 mark is significant because that might be where our price poll would have ended if we had run one. I'd propose the range $50 to $85 as the basis for a new price poll since things are getting interesting.
Chris