Short Answer: Not very much.
Long Answer: OPEC’s thirteen members are meeting in Cairo this Saturday to discuss a further cut in production. Energy prices have been mixed in response-they’re higher than earlier this week, but that’s due more to China’s 1.08% interest rate cut accouncement. Anyone expecting OPEC to cut production and finally pull up crude oil prices is surely drunk on Thanksgiving punch.
This weekend’s meeting was supposed to be a low-key event for OPEC’s Arab members. With the price crisis, invitations were extended to OPEC’s other members, but the meeting will serve as a stepping stone to a meeting in Algeria on December 17th, when a cut, if necessary, will be announced. OPEC have made surprise announcements before but the benefits of a cut, either now or in December, are not guaranteed.
Last month’s 1.5MMbbls/d cut did little to stem falling prices. The price of oil now depends very little on physical volumes, investors buy and sell on NYMEX in lieu of a market index or as a hedge against currency or as a purely specualtive investment. Fundamental supply considerations are simply not in play. So a production cut won’t automatically raise prices and gild OPEC’s coffers with gold. In fact, some OPEC members are strongly against a cut.
Nigeria is already suffering production disruptions from militant attacks, producting only 1.95 MMBbls/d of its 2.05 MMbbls/d quota. A Nigerian oil official has spoken out against a further cut as a fall in oil revenues will severely damage budgets. Ecuador’s Oil Minister Derlis Palacios is attempting to negotiate exemptions for Ecuador from any further OPEC cuts in production.
Oil Energy Money may be wrong on this count, but the world and OPEC are beginning to realise that the cartel no longer wields the power and influence it once did. A weaker OPEC is probably better for everyone in the long run, but with a global recession on the way and soaring unemployment, that’s only good news for people who love bad news.
