More Opecies Promise Cuts – But Do We Really Care?
Posted by zmann on October 4, 2006
With more opecies (Kuwait, Iran, Libya, and maybe UAE but no one could ring them) joining the fight against cheap oil with a 1 mm bopd proposed but unofficial cut, does this mean that oil should tumble by week’s end? “Buy the rumor, sell the news” may apply.
Plus, no Saudis. They remain in the background saying we’ll talk about cuts at the regularly scheduled meeting in December. Personally I’m glad they’ve gotten this off their chests.
Taken together with the previously announced “cuts” from Nigeria and Venezuela this represents about 8% of current OPEC production. Now here’s where it gets interesting. The US only consumes about one-sixth of OPEC’s daily production of 30.5-31 mm barrels, or about 5.5 mm bopd. We consume 8.0 to 8.5 mm bopd of NON-OPEC oil. We consume twice as much oil from Chad (not a member) as we do from Saudi Arabia, our biggest OPEC supplier. Heck, we get more oil from Mexico than from the Saudis.
Meanwhile U.S. crude stocks have been building at a rate of 2 to 4 mmbls per week on average over the last several months. So go ahead and cut back OPEC, your competition has been increasing deliverability (mostly Angola, FSU, Canada, US combined adds of 1.6 mm bopd) while you’ve been building palm shaped islands and bitching about oil prices that are over 6x what they were 6 years ago. So go ahead and cut. Our share will be 8% of 5.5 million bopd, which is 440,000 bopd or 3.1 mm barrels per week, which only balances the market and doesn’t send inventories back to levels supporting $70 oil, or $3 gasoline (that’s before taking into acount that 1.6 from the Non-OPEC’s). And watch each other closely, because I’ll bet the guys over the next sand dune are already cheating.