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OPEC cheats on production quotas, oil prices fall

posted on April 19, 2010 at 1:46 pm
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After the recent rally in oil to $87 a  barrel, an increasing number of OPEC (Organization of Petroleum Exporting Countries) members have started to cheat by pumping more oil than quotas allow. News today, April 19, that production from OPEC members increased 4.6% in March from March 2009 sent oil prices tumbling. As of 1 p.m. ET today the price of West Texas Intermediate crude had fallen 2.2%, or $1.84, to $81.40 a barrel.

Oil reached a high of $87.09 a barrel on April 6 but it’s been pretty much downhill since then. That day the U.S. Department of Energy predicted that U.S. demand will average just 18.84 million barrels a day in 2010. That’s still way below demand in 2005 of 20.8 million barrels a day.

Consumption in the 30 industrialized countries that belong to the OECD (Organization for Economic Cooperation and Development) will average 45.4 million barrels a day in 2010, according to the International Energy Agency.

Demand is picking up in developing economies such as China, Brazil, and India rising to 40.09 million barrels a day on average in 2010.

But because the United States is still the world’s largest consumer of oil, growth in developing economies won’t be enough to keep oil prices rising if demand from the United States (and other developed economies) has stalled. China, the world’s second largest consumer of oil, consumes only half as much oil as the United States.

In its monthly report, released on April 14, OPEC reported that compliance with quotas among members had called to 53% in March. Producers pumping above quotas included Venezuela, Nigeria and Saudi Arabia.

And while global demand will increase this year by 1.7% to 85.5 million barrels a day, that won’t be enough to absorb increases in production from non-OPEC countries and cheating by OPEC members. The U.S Department of Energy estimates that when both demand and production increases net out, global supply will be in excess of demand by 160,000 barrels a day in 2010.

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  • drevil on 19 April 2010

    Bloomberg is reporting a glut of natural gas as well, keeping those prices down. Big trucks- natural gas. Cars- electric/hybrids. These lower prices are just a reprieve until inevitable higher prices. Sooner we switch over and invest in the infrastructure the better.

  • andante on 19 April 2010

    Seriously, please correct me if I am wrong, but isn’t a large percentage of the price of oil determined by speculative money from traders. And hasn’t a large amount of this speculative money been in derivatives that have driven the price of oil higher. This is the reason that the commodity markets have changed from operating on a strictly supply and demand mechanism to a more speculative, trader driven dynamic. The derivatives through which this trading is done are unregulated and traded OTC. The recent SEC action against GS is based on derivatives trading. Since we know that one of the drivers of market sentiment is fear, isn’t the threat of regulation coming out of the GS suit enough to spook derivatives traders? A large portion of index trading in oil is done through swaps. Couldn’t the threat of moving derivative trading onto regulated exchanges have caused some of the speculative money to move out of oil and into “greener pastures” or simply run and hide? This recent move could just be the speculative money sloshing around in the bath tub?

  • terryw on 19 April 2010

    good ol game theory never fails! prisoner’s dilemma

  • YX on 19 April 2010

    OPEC cheating on quotas is not new. They can not help.

  • AlVilla on 19 April 2010

    I’ve been reading this was coming. I switched last week from Oil to Coal with a hefty 8% Dividend – PVR

  • gardenb on 20 April 2010

    Any thoughts on cameco cco looks like its down right now and they have the water pumped out of thier richest urainium mine?

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