Sunday, January 25, 2009

Oil: OPEC Production Cuts

OPEC countries are under increasing pressure to cut oil production as oil prices aren't able to prop up the many countries so reliant on higher prices to take care of their needs.

It's not a stretch to say the leaders of oil producing countries will have their hands full as people start to get edgy over consequences of low prices.

In reality, there's not much OPEC and other oil producing countries can do about it, as the economic crisis has lowered demand for oil, and no matter how far oil production is cut, it's not going to get people to spend their money on gas they're not going to use.

Cutting oil production will only cause people to travel even less, undercutting the very strategy attempted by countries to prop up their crude prices.

If oil prices rise than there will be a high cost of oil that will sit there not being used, as people continue to save rather than spend their money.

Oil storage and reserves are growing while consumers hold back from buying, that isn't going to change for OPEC or oil companies. The oil industry can cut production, and it has already, but that won't solve the problem the market has already decided.

All that corporations and countries should do is get out of the way and let the market figure it out. Intervention into the oil market will cause unintended consequences as government interference always does, and only prolong the economic pain for everyone.

There is nothing driving the oil markets, prices, supply, costs, drilling and production other than consumer demand. Nothing can be done to change that until the economic crisis ends and then money flowing back into consumer goods and services.

The oil industry can only stand by and watch, cut cost, get leaner, and prepare for when the turnaround in the oil market comes.

This will be essential for the industry, as once demand rises, there will probably be a huge surge in buying as pent up demand explodes. Oil companies and refineries need to be ready for that time, as they'll soon forget the bad oil news of today and their profits will again surge ahead.

Oil exploration is another important factor in the mix, as there is plenty of oil out there, and the demand will come back stronger than ever as America, China and other nations will return to their insatiable appetites for oil that they had in the recent past.

So OPEC and oil companies just need to relax a bit. Yes there's problems related to low oil prices, but forcing the issue in attempts to artificially raise the price of oil above market levels never works.

We just have to wait out the tough times and wait for oil demand to rebound.

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