October 24, 2008 OPEC Meeting Open Thread
Posted by Gail the Actuary on October 23, 2008 - 11:09pm
OPEC will be holding its meeting on oil production in Vienna, Austria on October 24.
I have not been able to locate a schedule, but the OPEC Meeting Website indicates that there will be live streaming of some events--press conferences, interviews, and opening events. This is described at this location. It is virtually certain that the meeting itself will not be on the webcast.
The website gives a form for people to submit questions to possibly be asked of senior OPEC officials at press conferences.
I am posting this information in advance, since the meeting starts while those of us in the United States are still sleeping. Some of you in other parts of the world may want to tune in to the webcast.
Below the fold you will find a few quotes I have noticed preceding the conference. It sounds to me like there are several hard-liners who want big cuts and several others who are cautious about making cuts.
Any OPEC cut should not spread pain-president
VIENNA (Reuters) - OPEC must not inflict pain on those suffering from the global economic crisis and may need more than one meeting to implement any supply cut, the group's president said on Thursday.
"The concern of the producing countries is, whatever decision is made, not to have an impact on increasing the pain of consuming countries," Chakib Khelil told a news briefing.
He reiterated his earlier comments that OPEC had to balance the needs of consumers and producers in its output decision at a Friday meeting. . .
Khelil, also Algeria's energy minister, said he preferred to see crude at $90 a barrel to ensure oil and gas projects were carried out. . .
The OPEC president said he had not discussed the level of any OPEC reduction with Saudi Arabia, the group's biggest oil producer.
Khelil said he hoped Russia will follow OPEC's suit and cut oil production.
UPDATE 1-OPEC sees need for cut, figure to be set-Venezuela
VIENNA, Oct 23 (Reuters) - OPEC oil minsters are agreed on the need to cut output at the group's Friday meeting, but the scale of the cut has yet to be fixed, Venezuela's Minister of Energy and Petroleum Rafael Ramirez said on Thursday.
'We are going to stop the collapse of the oil price,' Ramirez told reporters.
'We believe that we have some consensus for a cut, looking at the situation of the financial crisis,' he said. 'What we will do in the meeting, we are going to agree how much.'
Kuwait says OPEC must consider global crisis
KUWAIT CITY (AFP) — Kuwait's Oil Minister Mohammad al-Olaim said on Thursday that OPEC should act over crude prices but that any measure must take into account the global financial crisis.
"There is a surplus in the market... and sooner or later action should be taken anyway," Olaim told reporters before departing for Vienna for Friday's emergency OPEC meeting.
"(But) we are concerned about the financial crisis and I think any action should take into consideration the financial crisis."
When asked if an output cut is inevitable, Olaim said: "I think we have to balance everything together" by dealing with the surplus in crude and the financial crisis which has raised fears of global recession.
OPEC must cut output in face of falling demand: Iraq
OPEC needs to cut oil output in the face of falling demand, but cuts could be staggered so as to better assess their impact, Iraq's oil minister Hussain Al-Shahristani said Thursday.
"The demand for oil has gone down considerably over the last few months and the current production inside and outside OPEC is more than the demand so obviously that would require a cut in the production," Al-Shahristani told reporters as he arrived in Vienna for an urgent OPEC meeting.
Nevertheless, the minister refused to predict how big any cut by the Organisation of Petroleum Exporting Countries might be. . .
"Our budget for 2009 for Iraq is based on 90 dollars per barrel," he said.
The same article was not encouraging about Saudi Arabia's position. A quote:
"Who said anything about a cut?" said Saudi Oil Minister Ali al-Nuaimi to reporters.
VIENNA, Austria (AP) — Iran on Thursday called on OPEC to slash oil production by 2 million barrels a day to halt a steep slide in prices that has left crude at its cheapest since last summer. . .
The Saudis remained close-mouthed ahead of Friday's meeting.
"The prices are determined by the market," said Saudi Oil Minister Ali Naimi. Pressed on the probability of a cut, he told reporters: "Tomorrow we will tell you."
Russia Warms to OPEC, but Doesn't Promise Cuts
With crude prices dropping, Russia, the world's No. 2 oil exporter, pledged to cooperate with the Organization of Petroleum Exporting Countries -- but stopped short of any promise to join the cartel in production cuts to support the market.
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Most analysts are expecting an agreement to reduce output by at least one million barrels, but don't expect that such a cut would send prices significantly higher. Instead, it would likely merely prevent an unsustainable buildup in inventories, which would eventually cause a price crash.
“To keep markets in a balance, they need to restrain production somewhat,” David Kirsch, an analyst with PFC Energy Group in Washington, D.C., said yesterday.
“But they'll be very reluctant to take any steps that they think could have the prospect of over-tightening the market.”
Let us know what you are hearing about the meeting and its likely impacts.
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There are interesting production statistics on this web site. This flows of crude was kind of cool:
http://www.opec.org/library/Annual%20Statistical%20Bulletin/interactive/...
they can:
cut
do nothing .
or fix a price (min price and starve for 30 days...?) [ say $75 ]
Cut , the question is, how much each would cut.? Long days of arguments and no agreements.. (Echo here)
who cuts ,by how much. Same..
then how would one cut production and not accidentally cut off oil to one buying customer , by too much?
The logistics are mind boggling.
Do they think the have the world by the tail?
Playing God with out a license has problems. Back lash, or worse Electric cars.
Remember , the last time they did this they messed up big time and the buyer , got mad (?) and bought millions of Toyota's , so that when the spigot came back on , Demand was at a new low.
They still remember this event, and know it could happen again.
It hurt bad, in fact it seems the they were hurt worse for a longer period of time.
So I say , SHOW ME.
I'm ready.
No guts, no glory.
see Eco 1a curves:
I wonder if they can tune the curve of supply and demand, such that it hits a new equilibrium.
I bet you $100, they can't.
I bet if they try, it will back fire.
No takers?
http://www.investopedia.com/university/economics/economics3.asp
The world is in a different situation this time. We are near global peak oil meaning new discoveries will not be able to compensate for their reduction. Americans have no savings and are dependent on credit during a credit crunch. Consumers do not have the ability to purchase new vehicles, and business do not have the capital to design new ones. Electric cars may be expensive. Developing new oil wells is expensive. Rather than raising a stable price, restricting crude oil production currently would correct the undershoot of a falling price. At $75 to $100 / barrel for crude oil Americans would be happy to pay $3 / gallon of gasoline rather than $4 / gallon. Slashing production enough to increase price will not create a backlash this time.
"The world is in a different situation this time."
Ah, that is the central question, isn't it? "This time it's different"...the deadliest phrase ever uttered in planning the future!
But what if it's not? Or what if your right in fact, but wrong in timing by say only 20 or 30 years? That's a relatively short amount of time in the grand scheme of oil history...or what if we have used about a trillion barrels and about a trillion barrels remain...but what if it's three or four trillion? Again, it's pretty easy to be off by that much in the complex world of oil exploration and extraction. You will certainly be right that peak oil will come, and in the grand scheme of modern history, it will probably not be long until it does. But in the life of an individual, only a few decades means everything...it means that many folks will be able to buy their new relatively efficient ride, like a midsize Buick or BMW, and still bring down fuel consumption compared to the SUV idiocy, and live out the rest of their life in air conditioned OnStar guided comfort. Peak oil will still be coming when they throw off the mortal coil, but it won't matter to them.
Of course the opposite may be true too...they may buy the comfortable new Buick and be unable to refuel it in a matter of months...there is simply no way to know.
Of course, I would feel a lot more comfortable with a plug hybrid lithium ion midsize luxury ride that would get about 80 plus miles per gallon in routine use...enough to be just what the public would tolerate (most people could care less what's under the hood as long as it works and provides a comfy ride), but such a development could be shattering to the oil producers. The oil producing nations are showing signs of very great concern, as the U.S., China, Japan and Europe all seem to be developing very rapidly in the direction of low carbon, high mileage convenience (I know people who have bought Camry Hybrids not for the economy but for the long range, meaning less stopping to refuel. People will not give up convenience for efficiency, but an interesting little fact is starting to be learned: Efficiency can be very convenient. Things are going to get very, very interesting.
RC
The world has had 4 years of exponentially rising crude oil price while production remained constant. In spite of an huge financial incentive, the producers could not get it up. That is a powerful indicator that the world is at or near peak oil making all other explanations unlikely.
The crash in crude oil price that occurred in the 1980's was brought about by conservation and increased production from non-OPEC countries. Increased production from OECD countries does not appear possible this time leaving only conservation. Once the low hanging fruit is picked conservation becomes harder and harder.
As for plug-in hybrid vehicles saving the day, I would feel more reassured if the auto industry and Bush administration had not thwarted California's zero emission mandate and they had been on the streets for the last 10 years. In the U.S. conversion of the transportation system away from crude oil has not yet begun and will start late (if at all) during a major economic downturn. The conditions are not ideal.
Your argument can also work against you. What if you are wrong? Doing nothing to prepare for peak oil means we will crash and burn on the falling edge.
"Your argument can also work against you. What if you are wrong? Doing nothing to prepare for peak oil means we will crash and burn on the falling edge."
Oh, I have never and would never argue for "doing nothing to prepare", if by prepare you mean reducing fossil fuel consumption. There are easily 25 huge reasons to reduce fossil fuel consumption and peak oil is just one of them. If the price drops, and it looks to the public like the threat of peak is gone, they will probably go back to being comfortable if they can...but being comfortable may now mean using less fossil fuel.
We are about to test something very important: Can fossil fuel consumption stay down even in the face of decreasing prices? Or is the flattening and decline in fossil fuel consumption purely a price related thing? This is big. I don't know the answer yet (I have guestimates, but that's all), and niether does anyone else. But the oil producers as well as the oil consumers are watching this one closely. Their future, as well as ours, may be at stake.
RC
The key is the kinds of cars that buyers drive off new car lots. The well-used lots will only get the cars that were originally sold as new. Many relatively poor people are driving huge, gas guzzling SUVs because that's what sold well to middle-class surbubia about 5 years ago. Not many years before that they were driving the Geo's and Hyundais of a few years earliere.
If we have a couple of years of low pricing, there is an opportunity to wash out upside-down SUV values, rotate through a generation of gas-guzzlers, and get the system well-primed with smaller cars and hybrids. This would be a good time for a gas-guzzler tax on high-consumption vehicles and a rebate for efficient vehicles, but that won't happen.
The immediate problem is that you can't buy many hybrids, CNG vehicles, or high-mileage diesels simply because there aren't enough made, and they don't cover the vehicle size range. Where are the hybrid or diesel/CNG minivans?
Better still would be to use this lower prices to roll out a lot of public transport growth -- if fuel costs less and deflation makes labor and materials less, this is a great period for infrastructure growth.........except that few cities or states can afford it.
So my tin foil hat conspiracy goes like this;
By May/June of this year, Reservoir pressure in Ghawar waned to the point Saudis had to cut production pretty hard by the end of 2008. GWB was stopping by routinely to beg for oil, and this Simmons guy was gaining followers by the day. They were in a predictament.
So how do they cut production in an environment where the trade is short bank stocks and long oil? The worse the financial crisis was, the more that investors leaned on the PO story. To cut production while this thinking was at hand was to send the world into chaos. They needed a price collapse.
Meanwhile, the Fed needed to print money/lower interest to help banks, but they couldn't do it until the commodity bull was dead. Somebody new had to enter the oil market and short NYMEX crude with a massive position. But who could tip over the oil speculative bubble without risking everything they had? Someone who actually had the oil, and lots of it, like 9 mbpd worth of it.
So a deal was made between Secratary Paulson and Saudi. The Saudis sold 6 months or better worth of oil on the NYMEX through some shadow investment trading firm, selling each rally, and spooking investors. Meanwhile, the gov't would launch CFTC investigations etc to do their part.
Once energy shares in the Dow etc went to tanking, investors got spooked and pulled money out of 401Ks, and set the dominoes further. Ultimately the price crashes to the point neither banks not investors have confidence in anything.
Throw in the housing problem and you have a powder keg.
The Saudis get to cut an amount unthinkable just 4 months earlier, they got a higher price for that oil via hedges, and they killed alternative energy, all in one fell swoop.
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I find it interseting that they cut more than promised at their Sept meeting, and yet the news really isn't running with that story.
It seems the financial news tries to rationalize why things happen, and the truth is often left out. The story is demand destruction, NOT falling supplies, and that is to continue until prices rise.
Give us a break!
My bet is Secretary Paulson did not even think about oil, except to consider fleetingly, perhaps, that the only good news he has received is that the price of oil is going down.
The good news for the Saudis is that with the price where it is and the credit crunch - countries/companies will halt/defer investment in fields where the cost per barrel will be potentially higher than the market price and also it will slow down investment in alternative energy sources. All beneficial to the Saudis in the long run.
On the other hand the Saudis do not want the price to be so high that it exacerbates the worldwide recession/depression, which could crash the price.
To mix my golden metaphors - they will go for the Goldilocks solution - the "just right" level of reduced production that will keep the cash registers tingling without killing the goose that lays the golden eggs.
Bloomberg announced a large OPEC cut:
http://www.bloomberg.com/apps/news?pid=20601072&sid=azg0in03PRLk&refer=e...
But the markets are unimpressed.
WTI Nymex dipped to $63.47
This was the smallest cut that would even pretend to dent the current oversupply. We all know that OPEC quotas are symbolic, trailing the actual production figures rather than leading them. With the markets in panic symbolism is not enough right now.
Well I got the poll number right, and I'll guess they have another 1Mbpd cut lined up for December as well.
Question is, is this in addition to the 'holding to quota' cut they had in Sept than Saudi didn't do, or does it include that?
We know that SA have already postponed the Shaybah field production increase they planned, what's the next big project to be put on the back burner?
OPEC cutting oil production by 1.5 million barrels a day according to Marketwatch.
Iam watching world markets tank, nearly ten percent across the globe. Is this hand basket crowded? Does anyone else smell smoke? Isnt it getting a little warm in here? Has anyone got a wee bit o dram fer me draught? I can't for me life remember my prayers, I will leave Zadok_the_Priest to recite mine for me.
Do I sound worried? Or am I hiding it well?
Zadok_the_Priest, be sure to mention, Ive learned my lesson, I won't be blaming the women this time, it wasn't her fault, besides, it didn't work last time anyway.
Curse that I ever tasted that oil, I would spit it all back if I could. Seems the wretched stuff leaves a taste one can't remove.
Okay...Ive got hold of myself now, so how do you make money off this situation.?....DAMN! you see how weak I am ? I just did it again ! I seem to turn like a sick dog, always returning to my own vomit. I wretch up what made me ill, only to turn and reingest it again.
Fasting. Thats it ! ...I should fast from this thirst.
Instill discipline. Wean myself from this intoxication. Oh.....who am I kidding ? When all around me are drinking and getting drunk. Wow this is hard stuff to swallow.
What scares me most.....being in this detox tank with everyone else who's having the delirious tremens...all at the same time. Multiply my rant above by 6 billion squared.
Oh, and have a nice day!
I reckon we need an open thread for the markets, denninger reckons that today will be a biggie! A big crash i.e. the Nikkei is more than a thousand points below the DOW, that's a BAD sign. Even roubini was saying that markets could potentially be shut down for a few days in a matter of weeks if not less.
Giving Hank Paulson 250 billion dollars (to start) was a wise investment. One wonders where the market would be right now if that 250 billion had been immediately spent on nuclear, rail, wind and solar. At a minumum, some sectors would be WAY up-supposedly 70 billion of Hank's stipend went to pay bonuses to grifters. Jeez.
This is a link to an article talking about the $1.5 million barrel a day cut.
I saw in interview with some energy analyst on one of the news channels a few days ago and his feeling then was that a 1 to 2 mgpd cut was what we'd likely see from OPEC, but that wouldn't be enough to bolster the price. So far he seems to be right.
He thought it would take something more like a 4 to 5 million barrel cut to make a big difference. Even if they'd announced such a thing, would the OPEC members honored the quotas that would be set for them? I don't know they could stomach those loss of revenue that big a cut would result in. Then again, the other alternative is to lose the revenue by selling more oil but at a lower price.
I thought it was Mother Nature that was supposed to be doing the cutting on the Supply Side? :o)
I wonder how similiar the cut back in response to Demand-side reductions/Recession will be mirrored by Recession/Demand destruction when a Supply side induced cutback takes hold.
Nick.
I think it is easy to lose sight of the interconnections of the financial markets with the physical production. Production only takes place when the price is high enough for those doing the producing to be willing to accept the price. We somehow have a view of how markets are supposed to behave, but in fact, they are much more complicated than we understand, because of interconnected systems.
If we overshoot the amount of debt that we can employ for extracting future resources (and for a lot of other things), the financial markets have a way of getting back to us and telling us so.
A couple of more links. The cut has been allocated to the various OPEC members. The world market doesn't seem to think it is enough, though.
OPEC Agrees to Cut Production Quotas as Price Slumps (Update2)
Oil Options at $50 Soar After OPEC Cut Fails to Support Prices
Maybe the markets don't care what the quotas are, and are instead assuming that nations facing a downturning world economy will covet cash and keep the spigots wide open?
It will be a grand feat if they can re-knit a useful cartel in one quick day of meetings. I rather doubt it.