Posted on 12/10/2008 8:58:43 AM PST by thackney
Oil prices rose Wednesday as Russia hinted that it may soon announce plans to cut output, but gains were limited by news that heating fuel stockpiles surprisingly surged last week in the United States, traders said.
Light sweet crude for delivery in January was up 1.25 dollars at 43.33 dollars per barrel on the New York Mercantile Exchange (NYMEX).
On London's InterContinental Exchange (ICE), Brent North Sea crude for January climbed 70 US cents to 42.23 dollars.
The US Department of Energy surprised traders by announcing that stockpiles of distillates, including heating oil, surged by 5.6 million barrels last week. Analysts had forecast a drop amid winter in the United States -- the world's biggest energy consuming nation.
Earlier Wednesday, Russia said it would announce proposals to reduce its oil output by December 17, signalling the energy superpower's readiness to cooperate with OPEC to prop up falling crude prices.
"OPEC has serious plans in relation to a reduction" in oil production quotas, Energy Minister Sergei Shmatko told reporters, referring to the possibility of the cartel reducing its output quota.
"We are preparing our own proposals that we will announce no later than December 17," the energy minister said.
"All the decisions that OPEC countries are preparing will be very significant," he said, speaking on the sidelines of a meeting between the presidents of Russia and Argentina.
The 13-member Organization of Petroleum Exporting Countries is due to hold its next meeting on December 17 at which it is widely expected to cut production in an effort to bolster prices that have fallen from record highs above 147 dollars in July.
The cartel, which pumps 40 percent of world crude, has called on non-members to play a role in reducing output to stem the sharp slide in crude prices ...
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OK, let’s do some hypothetical math:
Oil sells at $50/barrel, Country A produces 1 million barrels per day. $50M/day, yes? And they say they need more revenue for their fiscal plans.
So they want the price to rise, they cut production to 900,000 barrels per day. How much does the price have to rise to before they break even? Answer: $55/barrel. And if it doesn’t?
In a supply and demand market, does cutting production really make up the revenue through increased prices?
Depend on lots of things, such as:
1. Is the demand for oil relatively inelastic or elastic based on the current supply?
2. Can or will other suppliers make up for the cut back of one supplier?
Cut backs can be handled for us............if we start drilling. This is assuming that all oil drilled for here, stays here.
You have two math problems. First 10% up doesn't equal 10% down of the other. 50 x 10 = 500 ; 55 x 9 = 495
Second, you need to work on profit, not total revenue. If it cost $30 a barrel to pay the expenses, it is changes to the $20 profit that matter.
does cutting production really make up the revenue through increased prices?
Only if the other guys do the cutting of production. Or else production would be continuously cut to smaller amounts. But OPEC has experienced price collapse before and understand the results.
They should have understood the effects of the upward spike. However, I have a belief that they were basically maxed out as it was.
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