OPEC cuts back

According to the FT report
from Carola Hoyos, dated 29 September 2006, two of the OPEC members decided to
make public their cutbacks in production, exasperating the rest of the organization’s
associates.

Venezuela and Nigeria,
both members of the Opec oil cartel, yesterday announced that they would reduce
their oil production by as much as 200,000 barrels a day to shore up prices. Several
other key members of the Organisation of the Petroleum Exporting Countries were
said to be furious about the unilateral decision.

Nevertheless, data due to be released in the next few weeks are
expected to show those other members, which include Saudi Arabia, Iran,
Kuwait and the
United Arab Emirates, are also reducing output but keeping quiet about
the
measure.

With crude inventories doubling in the last year, a cutback was expected…

To that end, and because refineries are demanding less
oil because of scheduled maintenance closures, Saudi Arabia is seen as
having already cut
production by 200,000 barrels a day, with another 200,000 being cut by
Kuwait,
Iran and the UAE.

Nigeria is cutting 120,000-150,000 barrels a day, while Venezuela is expected to cut 50,000
b/d. The total cuts would reduce Opec production to 27m b/d, a 600,000 b/d fall
in two months. But oil prices did not rise significantly on the news.

Nigeria is already producing fewer barrels than its Opec quota allows because of
militant attacks on oil facilities in the Delta region.

Neil McMahon, analyst at Sanford Bernstein, said: “I can’t see it (the move
by Nigeria and Venezuela) stabilising the price for long because Opec could turn on the tap again at any
moment.” He noted that spare oil capacity had doubled in just a year and is now
at 3m b/d.

Although, some of the 3,000,000 b/d idle capacity will surely leak through; the overbearing factor toppling crude prices is
the 1.3% slowdown in demand…

Cl0611060929_2

Crude Oil CL0611. Source: Prophet
(click to enlarge)

If the US economy finds a second air, we could still see a bounce
all the way to $70 in the closest future month; but, soon enough, the
slowdown in the US should take its toll on crude price support…