OPEC to make sure oil does not go below $100/bl = airlines will never be profitable?

[skywiz]

Stocks jump as oil tumbles on relief over Gustav ​

By Tim Paradis, AP Business Writer
NEW YORK — Stocks soared Tuesday as oil prices fell sharply on reports that the Gulf Coast and its oil facilities have been spared heavy damage from Hurricane Gustav. The Dow Jones industrial average rose more than 150 points.
Light, sweet crude more than $6 to $109.06 on the New York Mercantile Exchange, after earlier dropping as low as $105.46. The last time prices were in that range was in early April before a historic run-up above $147 per barrel.
The drop eased Wall Street's concerns not only about Gustav, but also about inflation's effect on the broader economy.
The market's optimism was also boosted by news that Korea Development Bank is in talks about taking part in a possible acquisition of Lehman Bros.Holdings. Such a move could allay some of Wall Street's worries about the troubled financial sector.
Bill Dwyer, chief investment officer at MTB Investment Advisors in Baltimore, said that beyond relief over the effects from Gustav, investors are betting that a slowing economy will crimp demand for oil. But he said the pointed reactions of the energy and stock markets Tuesday illustrate the overall uncertainty about the economy.
FIND MORE STORIES IN: New Orleans | Louisiana | China | Gulf Coast | New York Mercantile Exchange | Singapore | Gulf of Mexico | Vienna | India | Organization of Petroleum Exporting Countries | Hurricane Gustav | Lake Charles | Platts | Magnolia | St. Charles | Gertz | Purvin | Victor Shum | McGraw-Hill | Anadarko Petroleum
"It just shows you how unstable the market is based on the perception of the macro economic outlook. It changes daily. There isn't a consistent viewpoint of what is actually happening in the economy," he said, noting that stocks fell sharply Friday after economic figures and a weak report from the technology sector unnerved investors.
Bond prices rose. dollar rose against most other major currencies, while gold prices fell sharply.
Investors showed little reaction to a report that showed U.S. manufacturing activity contracted slightly in August, as expected, and that inflation slowed. The Institute for Supply Management, a trade group of purchasing executives, said its index on manufacturing activity fell to 49.9 in August from 50 in July. Wall Street had expected a reading of 49.9, according to the median estimate of economists polled by Thomson Financial/IFR. A reading below 50 indicates contraction. The ISM also found that inflation lessened.
Lehman Bros. rose after the governor of the state-owned Korea Development Bank said discussions were underway to set up a consortium with private banks to acquire Lehman. The comments follow weeks of speculation that the investment bank could be acquired as it struggles amid tightness in the credit markets.
As Hurricane Gustav dissipated, traders quickly turned their attention to slowing global economic growth, speculating that demand for crude will be dampened even in rapidly expanding China and India.
"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."
The Organization of Petroleum Exporting Countries is scheduled to meet Sept. 9 in Vienna and has indicated it may take action to keep oil at the $100 a barrel level.Ahead of Gustav, there was some disruption to oil supplies as oil companies shut down production and evacuated facilities. Altogether, about 2.4 million barrels of refining capacity was halted, roughly 15% of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill. The Gulf Coast is home to nearly half of the nation's refining capacity.
Oil companies, rig owners and refiners spread out across the Gulf Coast to look for damage from Hurricane Gustav on Tuesday, and some were already putting equipment and people back in place to resume operations.
Preliminary indications were that Gustav caused little damage to onshore and offshore facilities, though the full impact likely won't be known for a couple of days.
The drop in oil prices sent stocks in sectors like airlines higher. Energy names fell as oil dropped.
In other corporate news, technology shares advanced after Google said it is releasing its own Internet browser to counter Microsoft's Internet Explorer.
Overseas, Japan's Nikkei stock fell 1.75%. In afternoon trading, Britain's FTSE 100 rose 0.24%, Germany's DAX index rose 1.40%, and France's CAC-40 advanced 1.31%.


What ever happened to the laws of supply and demand causing the prices to go up and down? If OPEC does this, is this entire industry doomed? I mean, oil continues to come down giving hope...

And if they intend to manipulate the price by controlling production, how was the price 50, 60, 70 dollars a barrel not so long ago and they didn't do anything about it then?

 

[chperplt]

According to the story about this on CNBC, OPEC wants to take steps to ensure oil is at or below the $100 price level.

Again, according to that story, OPEC doesn't want to see oil back in the $140s and is going to adjust supply to keep supply from causing the spikes we've seen in the last year.

Maybe CNBC is wrong... but that story isn't quite in line with this article.

 

[regionalcap]

I take it to mean that OPEC does not want it to go back up. I don't think the articles implies that they don't want it below 100.

 

[Poahi]

"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."

What they are saying is that slowing demand and the lack of damage from the hurricane are resulting in lower prices, OPEC now wants to cut production to strengthen prices. Reducing supply is their 'backstop'.

 

[regionalcap]

I take back my earlier comments. You are right that OPEC doesn't want oil below 100. F'em. So which is it. One day we are at peak oil. Next day it is oversupply.


OPEC may need to cut oil supply 1.5 mln bpd -Iran

• Reuters
• , Tuesday September 2 2008

(Adds price fall, minister's comments)
By Simon Webb
DUBAI, Sept 2 (Reuters) - OPEC may need to cut oil supplies by as much as 1.5 million barrels per day (bpd), or nearly 5 percent, to balance global markets by early next year, Iran's OPEC governor said on Tuesday.
The Organization of the Petroleum Exporting Countries should consider a two-step plan to cut supplies at its meeting next week in Vienna, the official from price hawk Iran said.
"The current market is not balanced, it is oversupplied," Iran's Mohammad Ali Khatibi told Reuters by telephone. "Oversupply cannot continue for a long period. It will definitely have an impact on the price and on investments in the oil industry."
U.S. oil was trading under $108 a barrel on Tuesday after touching its lowest level since April. The price has fallen nearly $40 from its July peak on concern that a slower global economy will need less oil.
Iran's Oil Minister Gholamhossein Nozari told Iran's IRNA news agency on Tuesday that OPEC, supplier of more than a third of the world's oil, should discuss oversupply at its Sept. 9 meet. He also indicated that Iran wanted the producer group to defend oil from falling below $100 a barrel.
The president of fellow OPEC hawk Venezuela has said $100 a barrel is a fair price for oil.
Top oil exporter and OPEC's most influential member Saudi Arabia has yet to say what outcome it would like to see from next week's meeting. But it and other core Gulf producers have shown no public sign of being ruffled by falling oil prices.

TARGETS
The first step in balancing supply and demand would be for members that are pumping above their informal target to cut back to the agreed levels, which would bring output down around 500,000 to 700,000 bpd, Khatibi said.
Saudi Arabia pledged to pump at 9.7 million bpd in July and for as long as necessary to meet demand and help tame what it saw as unacceptably high prices. At that level, the kingdom would be 750,000 bpd above its output target.
The second step would be for a formal output cut and could be left until the producer group, supplier of over a third of the world's oil, meets again in Algeria in December, Khatibi added.
"We can take this step later if we consider it necessary," he said. "There are so many factors that are uncertain right now, we may need to do this in December. It is, of course, for the ministers to decide."
By then, it should be easier to measure how much the global economic slowdown has hit demand and how much oil producers outside of OPEC would pump over winter, he added. That would give OPEC a clearer idea of what it needs to supply to match demand, he said.
As things stand, demand for oil from OPEC was expected to be around 31 million bpd in the first quarter 2009, compared with current output of around 32.5 million bpd, he said.
Demand would slip around 1 million bpd to 30 million bpd in the second quarter but there would be no need for OPEC to trim further then. This would allow inventories to grow, he added.
Khatibi said it was difficult to give an ideal oil price, but that $100 a barrel was enough to encourage investors to engage in high cost deep sea or unconventional oil projects.
"If high cost projects need a price of around $60-$80 a barrel, then $100 gives investors a profit and incentive on those projects," he said.
If oil prices fall below that level, then projects could be put on hold or cancelled and crimp future supplies, he added. (Reporting by Simon Webb; editing by Anthony Barker)

 

[N1atEcon]

If people keep conserving and Plug in hybrids (hurry up Chevy Volt) start to come on line you will see OPEC selling their product at a lower price. Yes they will have "meetings" and they will cut production. They will talk tuff, but many of the OPEC countries have no other sources of real income to support their government. They want their product to sell high and are loving the political instability that is causing the spikes. Iran does it on purpose, look at the enriching uranium mess. If the US can come up with a partial fix to say take 3 to 4 million BPD usage out of the equation it would be huge. Now you get the whole world on board and OPEC will be scambling to figure out how to keep their product inflated. Less demand equals less leverage that OPEC has thus lower prices. Throw in a stronger dollar and the speculators will bail out too. Then things could be really good for the airlines.

 

[Poahi]

Before you go out and buy airline stocks, remember that the reason that OPEC is able to control prices is because it really doesn't have much competition. As demand falls, OPEC will cut production - this will tend to stabilize prices. Since the USA has no energy plan, we may slowly (very slowly) see demand decrease and after the economies around the world rebound, demand will rebound and oil will drive higher.

Even in the unlikely event we no longer dependent on foreign oil, our domestic producers will sell oil abroad at whatever price the market will bear. As we cut our domestic consumption way back, global demand is going to keep OPEC wealthy and powerful.

The entire globe is both the problem and solution.

 

[Smarta$$]

This is an example of how drill, drill, drill won't work. We can produce more oil, but opec will just cut capacity to keep prices inflated. And the gentlemen above is correct, our oil companies will sell the oil at the current price, to whatever nation needs oil. It is not "our" oil.

Plug in hybrids will destroy demand if sold around the world.

 

[Bringupthebird]

And why do you think the airlines care about profitability? As long as the cash keeps rolling in management can divert a portion into their pockets and when the piper needs to be paid down the road, the employees will close the gap.

Always have.

 

[AC560]

Wait OPEC is controlling the price of oil, I thought it was speculators? Can we just pick one bad guy to demonize and stick with it?

 

[SilverandSore]

This is an example of how drill, drill, drill won't work. We can produce more oil, but opec will just cut capacity to keep prices inflated. And the gentlemen above is correct, our oil companies will sell the oil at the current price, to whatever nation needs oil. It is not "our" oil.

Plug in hybrids will destroy demand if sold around the world.

So Hybrids are the answer but drilling isn't? That's ridiculous. Drilling can help for 2 reasons, one is that it increases the percentage of our oil going to the world market, making us a larger factor in the demand equation, two it keeps more money 'in house' lessening the overall impact of our reliance on foreign sources. Yes, OPEC may cut production to keep the overall supply the same, but again, our increases change the dynamics completely. Far more than a few hundred thousand hybrids taking to the road. But as most people realize, there are many parts to this equation. Why take something completely off the blocks when a combination of strategies will be more effective. More hybrids, more drilling, more wind, more nukes, etc.

If you can name ONE SINGLE reason why drilling more is bad, I'd love to hear it... Is it the environmental impact? That's hypocritical if we're talking about a global energy source, what, let others do it over there but not in my backyard? How arrogant. Seriously, what is the problem with drilling?

 

[pipe]

"Will airlines ever be profitable?'

Why would they, they never have. The only thing that has changed is the blatancy of the management theft and total lack of effort. Neither of those has anything to do with the price of oil. It is more a matter of the total lack of effective government oversight.

I know I will get hammered by all of you that think "the market" and "pure capitalism" should determine everything. That's all well and good, but it assumes people (management) have good intentions, ethics, and morals that they will assert on their own. THIS IS NOT THE CASE!

PIPE

 

[lookin4better]

glass parking lot! ;-)

 

[minrest]

OPEC tried to increase supply via the Saudi's when prices were climbing to the $140's. It didn't work. Why then can they control prices from dropping? As long as they are known to have the capacity to produce, I don't think that their actual production output is of much consequence.

 

[puddlejumper101]

So Hybrids are the answer but drilling isn't? That's ridiculous. Drilling can help for 2 reasons, one is that it increases the percentage of our oil going to the world market, making us a larger factor in the demand equation, two it keeps more money 'in house' lessening the overall impact of our reliance on foreign sources. Yes, OPEC may cut production to keep the overall supply the same, but again, our increases change the dynamics completely. Far more than a few hundred thousand hybrids taking to the road. But as most people realize, there are many parts to this equation. Why take something completely off the blocks when a combination of strategies will be more effective. More hybrids, more drilling, more wind, more nukes, etc.

If you can name ONE SINGLE reason why drilling more is bad, I'd love to hear it... Is it the environmental impact? That's hypocritical if we're talking about a global energy source, what, let others do it over there but not in my backyard? How arrogant. Seriously, what is the problem with drilling?

I don't see a real big problem with drilling. However...wouldn't it be smarter as a society and a nation to maybe start a movement away from oil alltogether? Drilling is really a band-aid fix in my eyes. Drilling more is not the ultimate answer. However, it might be a temporary fix. I was once told that oil was a finite resource...so if we really did come up with an alternative (in-house), wouldn't that in the end make things better? Could you imagine the day that the United States of America is completely self-sufficient in it's energy needs? A combination of oil (just not as much), hybrid technology, and other concepts (synthetic fules, natural gas, wind etc...) could result in us not buying crap from anyone else. That, to me, is worth more than drilling, drilling, drilling. We consume soo much oil that the amount we would need to drill to make a dent is really trivial. All of those resources could be used to find a long term fix. Making the biggest oil consumer on Earth less dependent on oil would be awesome. OPEC could then kiss USA's rear...and ultimately our connection with the middle east can be cut. That's why drilling isn't the answer. At least not the ultimate answer.

By the way...did I hear correctly today that Iraq signed a deal with China for oil? Yes...we spend billions of dollars on that pit and in turn they sell their oil to China. Nice work, I wonder if that's what Bush had in mind when we invaded the place. How ironic.

 

[FastJP4]

I look foward to, and hope I'm around to see the world get off their collective a$$'s and employ enough other technologies to render oil to the backstage of necessities. There is nothing more that I would like to see these countries that live and die on oil - well.........................................I think you get the idea.

 

[Clacker]

(pushes glasses up on nose) Anyone remember their econ class in college?

With regard to the supply & demand of oil, and OPECs role in this, it helps to know just how OPEC is able to control pricing through production and why it doesn't always work.

(cut/pasted from cliffnotes, italics added):

"Cartel Theory of Oligopoly
A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation. The organization of petroleum-exporting countries (OPEC) is perhaps the best-known example of an international cartel; OPEC members meet regularly to decide how much oil each member of the cartel will be allowed to produce.

Oligopolistic firms join a cartel to increase their market power, and members work together to determine jointly the level of output that each member will produce and/or the price that each member will charge. By working together, the cartel members are able to behave like a monopolist.

Once established, cartels are difficult to maintain. The problem is that cartel members will be tempted to cheat on their agreement to limit production. By producing more output than it has agreed to produce, a cartel member can increase its share of the cartel's profits. Hence, there is a built-in incentive for each cartel member to cheat. Of course, if all members cheated, the cartel would cease to earn monopoly profits, and there would no longer be any incentive for firms to remain in the cartel. The cheating problem has plagued the OPEC cartel as well as other cartels and perhaps explains why so few cartels exist."

 

[Smarta$$]

Wait OPEC is controlling the price of oil, I thought it was speculators? Can we just pick one bad guy to demonize and stick with it?

Well, although oil has declined 30% in the last few months, I know demand has not declined 30%. Nor has supply increased 30%. I am also sure that the dollar is not 30% stronger. Acombination of things? Sure. But speculation is/was a big part of it.

Now the discussion of OPEC is one of a future meeting and has not been reflected in the recent decline. Are you keeping up?

And, imagine a 30% decline in price without an increase in drilling. I guess the republicans telling us that drilling is the only answer are wrong.

 

[HalinTexas]

Well, although oil has declined 30% in the last few months, I know demand has not declined 30%. Nor has supply increased 30%. I am also sure that the dollar is not 30% stronger. Acombination of things? Sure. But speculation is/was a big part of it.

Now the discussion of OPEC is one of a future meeting and has not been reflected in the recent decline. Are you keeping up?

And, imagine a 30% decline in price without an increase in drilling. I guess the republicans telling us that drilling is the only answer are wrong.

Remember, with that decline someone (many) lost a lot of money because they bought futures at $130+.

This is turning into a political argument and away from an economic one. There was more than one pundit that said oil would come down after the Olympics. Yes, there is OPEC with their influence, there are speculator; and there's also the market, which the speculators plan. If people are buying less oil, the price comes down. Asia is slowing its growth and they are driving less over there as well. Read the WSJ once in a while. Read the whole thing, not just the comics.

 

[atpcliff]

Hi!

What's the problem with "Drilling"???

First of all, what do U mean by "Drilling"???

If, drilling you mean drilling in a US domestic location that is shallow, easy to access, and easy to get the oil out of, then drilling is a great idea.

The "harder" (technologically, economically, and the longer it will take to develop an oil field, and the harder it will be to move that oil to a refinery) it is to drill, the less sense it makes.

If by "Drilling" you mean in an off-shore location, with a total depth (water and land) of 35,000', with a lead time of 10+ years, and ENORMOUS cost to deliver the oil to market, then it makes NO sense at all.

Why does it not make sense to drill for expensive, long-term (5-10 years+ for the oil to come on line) oil?

Because all those resources: Dollars, personnel, natural resources to make the drilling equipment/oil deliver equipment, etc., would be better used to develop a RENEWABLE energy source.

If we spend $100m and 5 years to get oil production started out of one well, we will pump out the oil and it will end.

If we used the same $100m and 5 years to develop a RENEWABLE energy source, then America (and our Allies) will have energy, basically, FOREVER, with minimal pollution.

If the energy source you are promoting will not deliver energy 100 years from now, it is worthless as a long-term goal.

Drilling cheaply and quickly is a good idea.

Also, NUCLEAR plants are desperately needed to tide us over in the change from Oil to RENEWABLE fuels.

France is kicking our ass in Nuclear energy. Nice!

cliff
YIP