The Las Vegas odds were 10-to-1 that OPEC would keep production level. A lot of gamblers lost money.
The cartel cut daily production by 520,000 barrels a day to 28.8 million.
While oil prices moved up a tiny bit on the news, no one in the market panicked. The change is almost too small to matter. Oil consumption has slowed as the global economy has cooled off. Americans are walking and riding bicycles just as the Europeans have done for years.
OPEC’s announcement is more of a warning than a move of aggression. The signal says that, if oil moves down further, the radical elements among its members will have their way. Venezuela and Iran will get their wish. Production could be slashed before the end of the year.
OPEC has calculated that demand will actually not fall any further. There is still no indication of a slowing of crude imports in China and India. Russia may use oil as a bargaining chip as part of its new, aggressive stance toward the West. The winter across the Northern Hemisphere may still be relatively cold.
A token drop in output still allows OPEC to avoid being viewed as the villain. The growth in the demand for oil might be dropping a bit. But, a new study which Congress intends to use to attack energy traders indicates that speculators are to blame for much of the turmoil in the crude markets. That should bolster OPEC’s position that it does not wear the black hat.
OPEC is remaining nearly mute. A token gesture is all that it needs to telegraph that it is not prepared to live with oil prices below where they are now. It would cost its members too much money.
Douglas A. McIntyre
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