OPEC starves oil production to prop rates

by Freddie Mooche

Dec 14, 2004 New York - When OPEC members met recently in Cairo they came away saying they would cut oil production to raise crude prices by starving the market.

The move has worked, crude oil futures rose above $41 a barrel Monday with analysts and traders watching OPEC's moves closely. Some believe OPEC members were focused too much on the middle east stock exchanges that had been boasting gains for months when oil's price decline began eroding all of that increase. "What a coincidence", remarked one trader.

As analysts view OPEC cutbacks as taking weeks to reach global markets, OPEC members have stated that additional cutbacks could be in store. Some say the independence middle eastern countries are developing through the privatization of industries there that are going public on those stock exchanges is shifting their focus and may be influencing their cutbacks.

If OPEC members are deliberately cutting back production to fill their already bulging bank accounts then they may find the market won't play ball and raise prices to quickly due to supply levels being high enough to sustain the U.S. through the coldest period of the year.

Oil prices are over $15 less than its high of $55.17 that it hit two times in October. OPEC ministers had said that the one million barrel a day cutback would not start until January 1. But earlier Monday Kuwait's Sheik Ahmed Fahd Al Ahmed Al Sabah said they would starting cutting back today.

Kuwait's oil minister may have let the cat out of the bag as other OPEC members are sure to break stride as well and begin cutting back production before the agreed upon date - and even increasing those amounts. According to the U.S. Department of Energy, home heating prices would cost 34 percent more than a year ago and that commercial stockpiles of heating oil were below 2003 levels, which has put traders on alert as they watch the U.S. weather situation closely.

Though terrorist activities are also playing their role in limiting production and supply. Iraq's Oil Minister Thamir Ghadbhan said saboteurs have attacked pipelines 27 times in November compared to only 2 times in October. While in Russia, oil-giant Yukos is still facing a break up in forced sales by the tax authority there for unpaid income taxes and in China demand outweighs supplies as well as the nation expands its industrialization.

Reprinted From [AxcessNews.com]