Friday's OPEC production cut was a pitch we all saw coming. Unfortunately it'll be a big surprise if it turns out to result in anything close to a homerun for either the cartel or the consuming nations.
Here why I'm viewing the move that way: First of all, if you assume that global crude demand today is about 86.5 million barrels a day, the 1.5 million barrels-per-day cut represents about 1.7% of the total, probably not enough to make a difference in the face of weakening global markets and a strengthening dollar.
Secondly, and every bit as importantly, the agreement among the members apparently calls for less than a third -- about 466,000 barrels a day -- to represent Saudi Arabia's quota. Looking at other members of the group, Iran, for instance, is pegged to cut its output by slightly less than 200,000 a day. But don't bet your ducats on Iran, which is experiencing all manner of economic maladies and needs to maximize its oil income in the short run. Can you say "cheating?"
Ditto Venezuela, which last year booted a half-dozen integrated oil companies, including ExxonMobil
It's important to point out, however, that a continued slippage in crude prices is not necessarily a good thing. We aren't capable globally of producing much more than the 86.5 million daily barrels I mentioned. And that number will slide steadily as old fields across the planet tire and slow their production. Yet the further crude drops below, say, $80-$100 a barrel, the less likely it is that new projects will be maintained in developmentally expensive places like the Canadian oil sands or Brazil's deep waters.
Indeed, Suncor Energy
So I don't think our OPEC friends accomplished much Friday that'll affect world crude prices, either for their benefit or ours. Watch for the group to take yet another prodigious production chop when it meets again in December.
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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. He does, however, welcome your questions or comments. The Fool has a disclosure policy that's never the slightest bit oily.
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