I hope nobody who's rational expected the OPEC ministers to lower production quotas at their meeting in Vienna last week. Crude prices are doing a stellar job of rising up on their own, having essentially doubled in a matter of months, something to which investing Fools should be paying extremely close attention.
Following a pair of significant cuts in the second half of 2008, the 12-member cartel determined that it was best to leave well enough alone for the time being and stick with the current nation-by-nation allotments. Clearly the members are weighing the advantages of higher prices against the effects those prices would have on a still fragile global economy.
OPEC, whose members produce roughly 40% of the global oil supply, could make a difference there, at least in the short term. Its current production target has the organization producing at about 10 times ExxonMobil's
Easily the biggest problem with shrinking quotas within the cartel is that of enforcement. For instance, it appears that the 11 members at least theoretically bound by quotas -- Iraq isn't -- raised their production by 130,000 barrels a day in April. I'm betting that a slug of the cheating is occurring in Iran, which reportedly needs $70 (or more) oil to balance its budget.
Antics like those occurring in Nigeria and Venezuela are serving as de facto production cuts. As I recently told you, pipeline attacks in Nigeria have caused a 100,000-barrels-per-day shut-in there by Chevron
And then there's Venezuela, where Uncle Hugo has ceased paying all but the largest oilfield service firms, has forcibly assumed the operation of an Ensco
So OPEC is far more complex than just a group of producing nations that convene regularly for quota setting. Indeed, with the shenanigans in a couple of its member countries, a formal production cut may have been unnecessary. At the same time, my contention is that crude will continue to higher levels. Absence of a formal declaration simply provides Fools more time to up their ante in this recovering sector.
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