Question about OPEC and cutting production

[Atreus21]

http://news.yahoo.com/s/nm/200...4/bs_nm/us_markets_oil

Why should demand be affecting the price of oil, as they assert here? It's OPEC. They're the cartel that fixes prices. What's making the price of oil drop? Wouldn't people be buying gas in the same quantity if prices hadn't dropped at all?

 

[CLite]

Well as an engineer who does a lot of work in the petrochemical and refining industry, I'll provide my knowledge/opinion/view.

There are two types of OPEC nations. Nations with huge reserves and no needy people (i.e. Saudi Arabia) and nations with finite reserves and masses of poor people (Nigeria/Venezuala). The former wants *relatively* low oil prices that hinder alternative energy development. The later wants sky high oil prices to meet budget from year to year and maintain their unstable economy.

This dates back to late 70's early 80's. Companies like Exxon had enormous multi-billion dollar alternative oil initiatives like shale rock in the mid west. OPEC nations like saudi said enough of this and dropped oil prices down to something absurd like $5 to absolutely squelch alternative initiatives.

Anyways the point of the ramble is there is division within OPEC and they can announce whatever, but it is unlikely saudi will particularly agree with cutting production because they benefit from reasonable oil prices that destroy alternative initiatives.

Final point, traders nowadays are lunatics so who knows if the price of oil represents anything reasonable anyways.

 

[StageLeft]

Demand has dropped significantly. The original run up to 147 was predicated on the belief that demand would be inelastic and/or grow in the short and long term (it will long term, but clearly did not short-term) and an excessive hysteria about its value. Now that bubble has shattered and we see demand continuing to be lower, not to mention with a recession on its way and everything contracting, oil demand will drop from plastics companies to delivery trucks to people flying and taking vacations.

if OPEC cut all its oil production to 0, prices would fly up but OPEC would have no cut, plus it would help the recession along further, thus furthering demand loss and increase the desire of countries to move more independent from it.

Final point, traders nowadays are lunatics so who knows if the price of oil represents anything reasonable anyways.

That is an awful lot of it.

 

[Kuragami]

Well I called the oil crash along with the Precious Metal crash for Sept-Oct for the run up to the election. Gold touched $695 today and Silver 8.80 and it's not over yet. I said that the IMF and World Bank may do exactly what they did back in the 80s and push countries into Gold then crash it. They made their exit in Precious Metals twice, once at $1000 and again at about $995. We still aren't all the way there yet. I said $50 oil and I expect Gold to drop to about $500 and Silver to trade at about $7. This deflation will still have an end result of hyperinflation.

The only thing that has changed is my opinion on Gold and Silver. Silver is increasingly being treated as an industrial metal and they might cap the price of Gold under a new currency (Amero). What is accelerating the process is the price of oil being pushed to about $50 by the IMF and World Bank. Petrodollars have shrunk drastically which means OPEC nations are buying less US bonds. That means the US must print more money just to maintain the status quo. This is only scratching the surface. The run for the US Dollar will end up burning a lot of nations and individuals just like the run for Gold and Silver.

I was reading recently and I'm not sure how much credence to give it but I would say it makes sense. What I read was that when the Amero is introduced it will not be introduced as a competing currency. Instead the US currency will be officially declared as null and void and only Amero will be legal tender. This must occur after hyperinflation so likely sometime soon (6 months-1yr). Both the Mexican and Canadian currencies will be tanked along with the US Dollar. Then the banks will graciously allow you to go turn your money in at pennies on the dollar for Ameros. The G7 having talked about a new Bretton Woods makes this scenario possible. I'm not sure if this will come to pass but it's not beyond them to pull something like this. I'm also not sure how this will effect credit as it is monetized in each nation's currency. Hyperinflation sounds good to some people because they think it will allow them to pay off their house or credit with cheap money but you must be given the cash before you can do this and it won't be easy to put a lot of money into a mortgage or other credit payment when your grocery bill takes away all the money you make in a month.

Either way it's something to think about. Call me insane if you wish but just remember that I was called a nut job before and now the only nut jobs around are the guys still trying to convince you that everything is rosy and will turn out just fine.