OPEC: Lots of Oil, No Power
Oil prices have dropped. After OPEC announced that it would cut productions by 2.2 million barrels a day – it steepest cut ever.
But in response, Wall Street has done little more than yawn. In fact, prices actually went down. The price of oil per barrel dropped again this morning to $39.90, under its 4-year low. Merrill Lynch’s oil guru, Francisco Blanch, thinks oil could reach $25, while we suggested $20 just last week.
No one seems to know or have any control over where oil is going, least of all OPEC. It couldn’t stop oil from going to $147, perhaps its influence on the price of oil lost. Has it underestimated the amount of demand destruction occurring in the market as well?
OPEC represents only 40% of the world’s oil producing nations, and their proposed cuts are guidelines – not regulations. The simple fact is that they cannot stop nations like Iran and Argentina from pumping as much oil as they want.
And combined with a drop in demand, our oil supplies have flourished. The EIA reported crude supplies rose by half a million barrels last week, with gasoline and distillates rising by three to five times as much.
And while this morning’s market conditions are weighing on producers, cheap gas doesn’t seem to have affected them. Exxon Mobil (NYSE: XOM) is actually up almost 9% over the past 30 days alone, while Chevron (NYSE: CVX) and BP (NYSE: BP) are both up over 7%. The oil & gas sector is up over 12% since November 18th.