Expect nothing, live frugally on surprise.

Friday, October 24, 2008

Crude oil prices go down despite cut in out put

The OPEC has decided to cut its output of crude oil to slow the "dramatic price collapse". But the prospective of a reduction of 1.5 million barrels per day from November 1 is not enough to stop the price drop, falling below 64 dollars. December futures on Light Crude reached 63.05 dollars, the lowest level since May 2007, the Brent plunged to 61.08 dollars, a low since March 2007. The announcement was made after the special OPEC meeting in Vienna and was no surprise. Yesterday the president of the Cartel, Chakib Khelil, already anticipated that an agreement has been found between the ministers without however specifying the extend of the cut. Iran pushed for a cut up to 2-2.5 million barrels. The OPEC is ready to intervene also before its scheduled meeting on December 17th if necessary and "will continue to supply the market with all the oil it needs", guaranteed the cartel, underlining that today's decision could not be postponed due to the "dramatic collapse of oil prices". The decision will be re-examined in the summit in December in Orano, Algeria. "Meanwhile" the note continues "the Conference of member countries asked the secretary to continue to closely monitor the market". By December, Khelil guaranteed, effective output will fall by 1.8 million barrels per day. In addition to the cut decided today, some countries which at present produce more crude oil than their quota allow, will have to reduce their output. The OPEC president said he is "confident" that this will happen, because "there is no choice, they cannot allow the price to fall further". Regarding the price OPEC is after Khelil said: "We have no target, the market decides". And the cut decided today "will have no negative impact on inflation and economic growth", and it will have positive effects from a financial viewpoint. "The stock market" he said "will be helped by today's decision". In detail, Algeria will cut 71 thousand barrels per day, Angola 99 thousand, Ecuador 26 thousand, Iran 199 thousand, Kuwait 132 thousand, Libya 89 thousand, Nigeria 113 thousand, Qatar 43 thousand, Saudi Arabia 466 thousand, The United Arab Emirates 134 thousand and Venezuela 129 thousand. The cartel also asked the non-OPEC countries again to cut their production to stabilise the market.
The Indian government will consider fuel price revision in early November only if the crude oil prices remain low after a widely expected production cut announcement from the Organisation of Petroleum Exporting Countries (Opec), which is meeting on Friday. The cartel, which controls 40 per cent of world’s oil output, has hinted a cut in output to prop up the crude oil prices, which have fallen by more than 50 per cent in the last three months.
Cornered by members from the treasury as well Opposition benches in LS on whether the government will reduce fuel prices now that crude has come down, Deora said: "We are assessing the situation and in a week's time there will be an announcement on this." Members in Lok Sabha, CPM's Roopchand Pal and BJD's Brajakishore Tripathi, however, managed to draw him out this time by fusing the 'relief for the common man' with the government relaxing rules for the airlines to repay their fuel dues to state-owned marketing companies. Pal and Tripathi's point was that why the government, which ''bailed out'' private carriers, could not ''bail out'' common people by reducing fuel prices at a time when they were reeling under high cost of daily living. The populist pitch made Deora rise to the bait, even though he has consistently told the Congress leadership how oil companies cannot afford to bring down the prices yet. As a matter of fact, in the Lok Sabha too he started off by arguing the same. ''Earlier the government had announced that the retail prices would be reviewed once the price of Indian basket (crude mix bought by India) came to the level of $67/barrel. However, as a result of the depreciation of the rupee, the break-even crude oil price, as on date, is around $59/barrel.'' Pointing out that retail prices are worked out on the average of a fortnight's data, Deora told the members setting them on the basis of daily crude prices that fluctuate ''would not be advisable''. This becomes even more important as any decision on production cut that Opec may take on Friday may change the situation. ''Tomorrow the Opec countries are going to make an announcement about the future course of action (production cut) and then we will take necessary action...''


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