OPEC's Pity Party's Portents for the Global Economy

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A reduction of 1.5 million barrels per day (bpd) will occur on Nov. 1 - effectively cutting OPEC's production by around 5%. How did the market react? Oil prices dropped a coincidental 5% as well. Perhaps traders were expecting more? Or perhaps the slide we're in right now is too powerful to be stopped by the announcement of an ineffective cartel...

OPEC has been insisting that the oil market is oversupplied for months, and at its heavily anticipated emergency meeting last Friday, instigated by crude prices that have dropped over 50% since summer, they finally did something about it. A reduction of 1.5 million barrels per day (bpd) will take effect on Nov. 1 - effectively cutting OPEC's production by around 5%.

How did the market react?

Oil prices dropped a coincidental 5% as well. Perhaps traders were expecting more? Or perhaps the slide we're in right now is too powerful to be stopped by the announcement of an ineffective cartel on an otherwise-average Friday in Vienna.

...Each country in OPEC has its own ideal price range, directly related to how much of their economy (and more importantly, their government budget) relies on oil revenue...

Reuters reports that some analysts believe Venezuela needs oil around $100 per barrel to support the government's spending, but Mr. Chavez recently disputed that number, calling for a price band of $70-$90 per barrel.

As usual, Saudi Arabia was the country that we were all really looking at, because Saudis still drive the OPEC bus. They were the ones that had upped production when prices were high, even though OPEC kept saying the market was oversupplied. Saudi Arabia is also where the largest cuts would have to come from...

Oil demand in the U.S. continues to fall. This can be seen in the crude inventory numbers reported by the Energy Information Administration, which rose again last week. It can also be seen in the August driving numbers reported by the U.S. Department of Transportation...

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