The Oil Drum

66 comments on I'm sure it will be just a friendly chat!!!

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Amy on December 27, 2005 - 2:37pm

Now that the post-Katrina crude/products loan is ending, it seems that it might be more difficult for OPEC and Russia to lower the price (probably not the real goal, anyway). All those strategic reserves will need to be refilled, which might keep demand from falling as much as usual during the second quarter.

http://www.channelnewsasia.com/stories/afp_world_business/view/185447/1/.html

Am I wrong?

-Amy

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philiparnason on December 27, 2005 - 2:59pm

Amy,
I think you are referring to OPEC lowering production right? I think it is all dependant on the current price. I think OPEC would have a fairly difficult time to cut production when the price is over 60, especially since they just came out with a 45-55 price band (does NOT refer to the CME price). Of course, OPEC is forced to "cut production" if depletion forces them to, and it is likely they will mask their depletion with convenient production cuts.

Either way, I'm curious as to why OPEC is against market transparency. What is in it for them? If they are at their limits, they can't really be blamed for the price of crude. Is the allusion of having control over the price of crude so beneficial?

Philip

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Amy on December 27, 2005 - 5:34pm

Yes, I was referring to OPEC's potential reduction of production---more specifically, though, referring to the snippet in HO's original post and the 7% reduction in demand for OPEC's oil. I should have pasted the relevant bit into my post.

I just don't think we're going to see as much drop in demand this Spring as we sometimes see. I could be wrong, but if the market is made more tight by the refilling of reserves, the price would likely go up.

I suppose we can watch OPEC's production in response to price, especially if the U.S.'s benefactor nations start to refill those reserves this spring, and infer from their actions whether OPEC has real production capacity standing by.

-Amy

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Luis de Sousa on December 28, 2005 - 2:53am

I totally agree with you. And remember that in the US the idea is not only to refill the reserve, but also to increase it from 700 MB to 1000 MB.
Also the chinese will start filling their strategic reserves of refined products.