OPEC Failure Foretells Decline 10 Years After $10 Oil

[ben_meyers]

Source: Bloomberg

Dec. 1 (Bloomberg) -- A decade after OPEC failed to prevent oil from collapsing to $10 a barrel, the world’s biggest producers are delaying the action needed to arrest the steepest slide in energy prices.

Ministers from the Organization of Petroleum Exporting Countries postponed debate on a second cut in output in as many months during meetings in Cairo Nov. 29. They will wait until later this month, after a slump in global economies and the popping of the commodities bubble sent oil down almost $100 from its record price in July to as low as $48.25 a barrel in New York on Nov. 21.

“They are riding the economic wave just like the rest of us,” Adam Sieminski, Deutsche Bank AG’s chief energy economist, said in a telephone interview in Washington. “In the past when there has been a big economic downturn, OPEC has had to go through a series of cuts to stabilize the oil market.”

They haven’t done enough this time around to halt the 67 percent drop. Merrill Lynch & Co., forecasting the first contraction in global demand in a quarter century, sees crude bottoming at an average $43 a barrel in the first quarter, 21 percent below where it ended last week. In December 1998, crude tumbled 61 percent from its peak to as low as $10.35 when OPEC failed to eliminate a supply glut.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=auITrgeTXJnU&refer=home

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Fortunately for the consumer OPEC members are a bunch of back stabbing bastards. In the 80's and late 90's they made all sorts of production agreements which they ignored out of self interest. Watch for the members to now increase output to keep their economies afloat. I have been reading reports that storage facilities are reaching their capacity already and that mothballed tankers are being pressed into service for additional space.

[Xolodno]

1. I may have went to school with some...

...of thier "advisors". Half the students in my econ classes were from the middle east and a lot of them seemed to have some pretty good connections (not to mention access to plenty of funds). Lets just go straight to the point, I may have a piece a paper that says I know something about economics, but I sure don't consider myself the sharpest blade in the knife drawer....but, quite a few of these guys were duller than I was.

Soon as they cut production I knew the price would STILL drop. In the short term oil demand is inelastic...in the long term, your hard pressed to find anything thats inelastic. The insane sky rocketing prices already forced people to change thier habits or put them in a position of no longer able to consume that much oil. Trying to keep the price high by cutting production only forces more off the resource. An example would be, lets say the price of coffee shot through the roof. People who need thier fix will still consume in the short term...but eventually everyone will got to other alternatives such as tea and soda for thier caffine. Price of coffee drops...so they cut production, and more people move over to tea and soda as they are not willing to pay a higher price anymore and realize they don't "need" coffee.

What they needed to do was to keep production high as possible....even if that means at a loss in the short term. The cheap price of energy would eventually undercut other energy alternatives, induce a faster recovery and people would once again wane themselves back on to oil. And once the market is accustomed to sucking up oil....price can then slowly be raised to responsible profitable levels. But hey, I'm not complaining about the sharpness of knives right now.

[AlphaCentauri]

2. If they cut production and people consumption there will be less pollution

The ecosystem is as important as the economy.

[Xolodno]

3. Agreed.

Hence why I'm not really complaining. Let thier own foresight be thier own downfall. But, if I was an OPEC member and concerned about the lining of my wallet and to hell with the evironment...I would recognize that cutting production was a bad idea.

[AlphaCentauri]

5. They could re-invent them selves

Not necessarily selling cheap oil but derivatives of oil

[Xolodno]

7. I belive a number of OPEC nations already are...

...Building those islands and fancy towers are not just to flaunt thier wealth. But, to attract another economic base...tourism. They've already seen the writing on the wall and are planning accordingly. And some of them, are in denial...I'd say Iran's biggest enemy right now is Iran.

[legin]

4. Interesting n/t

[JJ]

6. When the price drops below $40 a bbl

Obama ought to open the flood gates from the strategic oil reserve. Practice a little of the economic warfare that OPEC has been practicing on us for decades.

[BelgianMadCow]

8. great idea.

I on the other hand have to decide when to buy how much heating oil :crazy:

[yava]

9. Why OPEC does not oppose drop in oil price

I think they delay this just long enough to make sure initiatives for alternative energies tank due to high relative costs.
Then they will go for oil between 75 ana 100 USD

[Psephos]

10. Try searching for "peak oil" posts on DU from May or June...the sky-is-falling alarms are legion

What a difference a few months can make.

So many people were utterly, vehemently certain that oil would be $200 right about now. To try even gently suggesting that oil prices were a bubble due for a tumble would bring a hellstorm of flame.

Life is a bit more civil around here now. :-)

[neverforget]

11. Well when demand falls so does the price. It still doesn't change the fact

their is a finite amount of oil in the ground.