OPEC Head predicts output cuts

Rick Moran
With oil prices tumbling toward the $40 bbl mark, the cartel will probably take drastic action and cut production substantially says the head of the organization:
Oil markets should brace for a surprise decision on output cuts when OPEC meets Dec. 17, the cartel's president said Saturday, suggesting that reductions could be deeper than expected.

"A consensus has formed for a significant reduction of production levels" by the 14-member Organization of Petroleum Exporting Countries, OPEC President Chakib Khelil told The Associated Press.

The OPEC head would not discuss how deep the output cut would be, but said it could be "severe," and noted that some analysts are predicting cuts of as much as 2 million barrels per day.

An output decision that startles markets would help bolster plunging oil rates, Khelil said.

"The best way is to surprise them," he said. "I hope it (the decision) will."

Oil prices settled at a four-year low on Friday of $40.81 a barrel. In July, prices peaked at record highs above $140 a barrel.

OPEC previously announced a 1.5 million barrel-a-day reduction in October, but the decision failed to halt the fall in prices. Markets have been expecting another cut at the Dec. 17 summit.

"The stronger the decision, the faster prices will pick up," Khelil said.

This is wishful thinking on Khelil's part. History has shown in this kind of market that it's pretty much every man for himself and the devil take the hindmost among cartel members. They will undercut each other as they scramble to lock up customers, pumping as much oil as they think they can sell and to the devil with any "production targets."

The tactic may temporarily boost the price but if history is any guide, within a couple of weeks it will continue its slide.

 



With oil prices tumbling toward the $40 bbl mark, the cartel will probably take drastic action and cut production substantially says the head of the organization:

Oil markets should brace for a surprise decision on output cuts when OPEC meets Dec. 17, the cartel's president said Saturday, suggesting that reductions could be deeper than expected.

"A consensus has formed for a significant reduction of production levels" by the 14-member Organization of Petroleum Exporting Countries, OPEC President Chakib Khelil told The Associated Press.

The OPEC head would not discuss how deep the output cut would be, but said it could be "severe," and noted that some analysts are predicting cuts of as much as 2 million barrels per day.

An output decision that startles markets would help bolster plunging oil rates, Khelil said.

"The best way is to surprise them," he said. "I hope it (the decision) will."

Oil prices settled at a four-year low on Friday of $40.81 a barrel. In July, prices peaked at record highs above $140 a barrel.

OPEC previously announced a 1.5 million barrel-a-day reduction in October, but the decision failed to halt the fall in prices. Markets have been expecting another cut at the Dec. 17 summit.

"The stronger the decision, the faster prices will pick up," Khelil said.

This is wishful thinking on Khelil's part. History has shown in this kind of market that it's pretty much every man for himself and the devil take the hindmost among cartel members. They will undercut each other as they scramble to lock up customers, pumping as much oil as they think they can sell and to the devil with any "production targets."

The tactic may temporarily boost the price but if history is any guide, within a couple of weeks it will continue its slide.