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The wages of delaying new US oil production further
Posted by: McQ on Friday, October 24, 2008

Oil is trading at $64.75 today and Americans have trimmed their travel by 11 billion miles a month (and trust me, that's noticeable to a guy who puts 40,000 miles on a car each year) for some months.

OPEC responds:
The international oil cartel agreed Friday to cut daily production by 1.5 million barrels in a move to drive up prices on the international market — and, at the gas pump.

But, crude oil futures went in the other direction, falling 5 percent Friday in London trading on speculation that demand will continue to fall.

Oil fell sharply in morning trading on the New York Mercantile Exchange, with light sweet crude priced for December delivery at $64.40.

Hardline OPEC members Iran and Venezuela had been pushing members to slice production by 2 million barrels a day, with Iran's oil minister declaring, "The era of cheap oil is finished." When asked before Friday's meeting what price Iran would want for its oil, Gholam Hossein Nozari boasted, "The more the better."

OPEC, meanwhile, cited lower demand and market surpluses as reason for reducing output.
OPEC had previously been contemplating a .5 million barrel a day cut. Plummeting oil prices have obviously caused OPEC to rethink the size of the cut.

Of course if we were "drilling here and drilling now", such a cut wouldn't have as much of an effect on us or prices as it will probably have now, would it?

We can do two things at once can't we? Drill for oil now and increase that in the short term while pursuing long-term alternative sources of energy?

Too much to ask?

As usual it'll be your wallet which will be impacted as political leaders delay a workable solution for increased domestic oil and gas production - if they allow it at all.

Don't forget, not all of them were displeased that gas was at $4 a gallon. And I imagine you know who they are.
 
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Comments
even if we drill here and now is that really gonna be that much oil or to say enough to control or substantially lower the price if they continue to cut production?
 
Written By: NSolo
URL: http://
If oil prices fall below $50 a barrel, Iran’s subsidies for home-buying and for vast numbers of their unemployed come under risk of cutbacks, something which the clerics must avoid. $50 per barrel would seem to be the floor; not because of economics, but because of the political necessity if Iran doing watever it can (kidnapping British sailors, harassing naval warships in the Straights of Hormuz) to create enough fear in the markets that the price stays above $50.
 
Written By: a Duoist
URL: http://www.duoism.org
I believe any illusion that supply manipulation is not used to affect the price of oil is gone, now.
 
Written By: jpm100
URL: http://
OPEC might say they’ll cut production by 1.5 MBPD, but OPEC’s membership is notorious for attempting to cheat on production quotas. I’ll believe it when I actually see it.
 
Written By: InebriatedArsonist
URL: http://
OPEC might say they’ll cut production by 1.5 MBPD, but OPEC’s membership is notorious for attempting to cheat on production quotas.
You’re right, they do. And despite their rhetoric, Venezuela and Iran really can’t afford the loss of revenue right now.

But that may be why OPEC went with the 1.5 million instead of .5 million, expecting, with cheating, to really achieve the latter number.
 
Written By: McQ
URL: http://www.QandO.net
$50 per barrel would seem to be the floor; not because of economics, but because of the political necessity
There is more than political necessity at work here with the $50/barrel minimum. Sanctions imposed upon Iran for all these years have frozen Iran’s oil infrastructure in the 1970s. Whereas it costs approximately $6 a barrel to get oil out of the ground in Saudi Arabia, the cost in Iran is more like $32 a barrel. And from there you have to get it to the coast for shipment. The closer the price of oil gets to $50 a barrel, the closer Iran’s economy gets to going under. So much so that Iran has mandated that all automobiles in the country be converted to run on natural gas. First, because Iran cannot afford not to sell every drop of oil outside its borders and Second because this same infrastructure problem is even worse for natural gas. It is virtually impossible for Iran to economically ship its natural gas outside the country so using it is far more cost efficient.
 
Written By: SShiell
URL: http://
I believe any illusion that supply manipulation is not used to affect the price of oil is gone, now.
Uh, every one knew that since the 70s oil embargo.

Thing is, it isn’t such a great tactic, since cutting back on supply may raise the price, but not the profit.

What would be sweet would be to be an unfettered oil producer, while all the other producers cut production.

 
Written By: Don
URL: http://

 
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