OPEC should cut overhang to bring stocks to 52 days cover

Platts ^ | 4 Dec 08 | Lies Sahar

[thackney]

Oil prices could fall to "very, very low" levels in the absence of a price floor and OPEC will need to remove excess supply in order to bring stocks back down to 52 days of forward cover and restore prices to between $70 and $90/barrel, OPEC president Chakib Khelil was quoted as saying Wednesday.

"Oil prices could fall to a very, very low level, depending on supply and demand fundamentals, stocks and also future global economic growth," Khelil said in an interview with Spanish radio and carried by official Algerian news agency APS. "So there is no floor."

Khelil, who is also the Algerian oil minister, said there were "obvious" signs of excess supply with consumer stocks at very high levels at 56 days of forward cover, against a 52-day average over the last five years. This, he said, represents around 320 million barrels of oversupply.

The next OPEC meeting due to be held in Oran, Algeria, on December 17 "should take an adequate decision to remove this quantity over a set period of time," be it three, six or nine months, he said.

Khelil again appealed for help from non-OPEC members to drain excess supply, saying the length of time it would take to balance markets would depend on their support.

It was necessary for oil prices to return to levels between $70 and $90/b to guarantee future investments in "difficult" production areas, which he said required higher prices to be economical.

Oil prices are $100/b below the all-time high achieved July 11 this year, when US light sweet crude oil futures traded at $147.27/b.

[thackney]

I question a 56 day supply is such a great overage compared to a normal 52 day supply, 7.7% overage?

It looks like it is just the high side of normal swings.

[org.whodat]

Oil speculators know the Democrats will go after them, and hit them with tax for the past years..

[stefanbatory]

what would be a good price to continue to spur new domestic exploration and production?

[Sacajaweau]

One would think low oil prices would be good news....and money would purchase other consumer goods or be used to pay off debt. It also means my winter heating tab will be lower.

Why are low oil prices "bad news"?

[org.whodat]

what would be a good price to continue to spur new domestic exploration and production?

The price set by supply and demand, when only people who can pay far and take delivery are in the market.

[econjack]

It was necessary for oil prices to return to levels between $70 and $90/b to guarantee future investments in "difficult" production areas, which he said required higher prices to be economical.

Translation from the gobbledygook machine: "Come on guys! We need to stand together to control prices and you're not playing fair."

[elpadre]

It has been interesting to note the stock market plunge as the oil prices went up, but now is they drop it appears to have no affect on reversing course and taking the dow up.

I suspect it has to do with too much control and/or manipulation by political forces.

[thackney]

Why are low oil prices "bad news"?

Cancellation of expanded drilling and production for future. The high prices of the mid first decade of 2000s was caused primarily by the low prices of the late 1990s.

Also the cancellation of alternative fuel projects due to low prices.

[ZULU]

I hope these monsters lose their shirts. I hope oil prioces collapse totally. I hope we smarten up and start drilling HERE NOW and develop alternate energy sources.

By strangling these monsters, we cut off the cash supply that bankrolls terrorists and Wahhabist “missionaries” in the west.

The Arab oil states are purely evil entities which should be destroyed economically.

As long as the oil dollars flow in, Wahhabism thrives.

[thackney]

I hope oil prioces collapse totally. I hope we smarten up and start drilling HERE NOW and develop alternate energy sources.

Do you recognize that your first hope prevents your next hopes?

[montag813]

OPEC is smart. They have no problem keeping oil below $50 and perhaps $40 for a long time, in order to pull the rug out from under the “green energy” industry. As solar and biofuels costs increase vs. oil, their investments will dry up like they did in the 1970s and then they can cur crude production again.

[thackney]

OPEC is smart. They have no problem keeping oil below $50 and perhaps $40 for a long time

I would say that is true for Saudi Arabia, Kuwait & UAE.

But that is not the case for Iran and Venezuela. It will definitely stifle plans in Iraq as well.

[meatloaf]

While I’m not a fan of the Saudis I do support their efforts to beggar Iran. Countries like Iran are in the position of having to keep the population mollified by advancing public service projects. Since they’re also funding Hamas and Hezbollah, they have to keep the oil money flowing. That means they have to pump and sell more and more oil as prices drop. Of course low oil prices take away the financial incentive for developing alternative energy sources.

[Realism]

Any supply and demander's seeing the market manipulation and collusion yet? Free market my ....... Strange how the price of oil and gasoline collapsed just as investors started pulling their bets out. Pretty obvious there was no oil shortage now that it took a whole 2 months to shut the drill, drill, drill crowd down completely. No not thru added production capacity but thru a debt driven market recession.

Amazing.

[org.whodat]

I hope the democrats fry the speculators, I will be on the side lines cheering them on.

[Realism]

Speculators just took advantage of the situation, fry the ones who created the free for all thru deregulation.

[org.whodat]

I want all of their heads, this stuff will not turn around tile someone in charge starts putting people in jail and saying this BS will end, financial institutes cannot be allowed to create money!! Are print money.

[Balding_Eagle]

And who says supply and demand don’t determine oil prices?

Well, Bill O’Rielly for one.

[Realism]

financial institutes cannot be allowed to create money!!

Without a lot of blood, sweat, and tears backing it up printed money has no value. Most fiscal conservatives automatically know that money for nothing has its consequences.

[VeniVidiVici]

Here's hoping that the Venezuelans have a "Let them eat cake" moment in the next few months.