Wednesday, December 17, 2008

OPEC Slashes Production by 4.2 Million BPD

OPEC ministers in Algiers have decided to dramatically cut crude oil production by more than double the expected amount, slashing output by 4.2 million barrels of production per day. Even still, the production cut is being met my market forces with somewhat of a yawn. Crude oil is trading lower now than before the announcement! Clearly, the crude oil market sees the cut as necessary given the global economic recession and the temporary glut in supply for the time being. Crude oil appears to be settling into a trading price range of about $43-$49 per barrel.
This is a favorable price for motorists and is welcome news for the world economy. However, most experts in the crude oil markets recognize that this price is below the drilling and production costs in most parts of the world. Hence, crude oil production is likely to fall over the next year or two until the price of crude rises again to make additional production profitable.