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OPEC Announces Big Production Cuts

Stanley Reed, Business Week
Oil prices plunge nearly $5, to $63 a barrel, even while OPEC shows “solidarity” by announcing a 1.5 million-barrel-per-day production cut

Through the nine years of ever-increasing oil prices, OPEC snoozed, faintly uneasy with the damage high prices were doing to its customers’ economies but content to reap the windfall. Now, with prices having fallen by close to 60% from their July peak of $147 per barrel, the Vienna-based organization is waking up, if not panicking.

On Oct. 24, OPEC announced production cuts of 1.5 million barrels per day. And to try to make the cuts credible, the organization spelled them out for each member, including Angola, which has recently joined and agreed to give up 99,000 barrels per day. “These are real cuts, not B.S.,” says Vera Deladoucette, an analyst at Cambridge Energy Research Associates, who was attending the meeting. “Prices close to $60 per barrel concentrated the minds of people.”

… As with so many other businesses, a lot of assumptions about the future of the oil industry have been rattled by the protracted credit crisis and its spread into the global economy. The suppositions that underpinned the sharp rise in oil prices—peak oil and fast-rising demand in emerging markets—have now gone by the boards, at least temporarily, as forecasts of future demand are relentlessly trimmed.
(24 October 2008)

Cuba’s claims of 20B barrels in offshore oil raise eyebrows

Jeff Franks, Reuters
Cuba’s announcement last week that its still untapped offshore oil fields may hold more than 20 billion barrels of oil has raised eyebrows among outside oil experts who say the big number is hard to believe but not out of the realm of possibility.

They said Cuba has excellent geologists, but they would like to see the findings verified by independent experts who have no stake in the Caribbean island’s oil future.

Potential reserves of 20 billion barrels or more would put Cuba in the big leagues of world oil producers and bring new prosperity to the communist-run island that imports more than half its energy needs.
(24 October 2008)

Iran’s president under pressure

David Blair, Telegraph (UK)
Iran’s hardline president is under mounting political pressure as plummeting oil prices damage the national economy and persistent reports suggest that he may be in poor health.

… Mr Ahmadinejad, who has a reputation for being a workaholic to the point of hyperactivity, may be suffering from the strains of office.

Rapid falls in the price of oil are adding to his woes. Iran produces about 4.2 million barrels of oil every day, making its economy and national finances largely dependent on the price of crude. Yesterday, oil was trading at about $66 per barrel – less than half the peak price of $145 recorded in July.

Whenever the oil price falls by a dollar, Iran probably loses about $1 billion. The national coffers are being hit at exactly the time when Mr Ahmadinejad should be concentrating on securing another four-year term at the elections due in June.

But the president was widely unpopular even when oil prices were rising. Mr Ahmadinejad was accused of driving up inflation and damaging living standards by squandering the oil money on wasteful prestige projects.
(24 October 2008)
The Western and Iranian press don’t miss a chance in getting a dig each other. As a result, it’s hard to get a true picture. Does Iran represent a nuclear threat? Is it a failing petro-state? Is it the emerging power in the Middle East? All these contradictory themes are to be found in the news coverage. -BA

Venezuela oil price tumbles, Chavez pressured

Brian Ellsworth, Reuters
The price of Venezuelan oil fell more than 10 percent this week, boosting financial pressure on the government of leftist President Hugo Chavez whose popularity depends on oil-financed social programs.

Analysts said Chavez could survive a large oil price drop in the short term due to abundant government funds, but the socialist stalwart could face a larger-than-expected 2009 fiscal deficit amid the global financial crisis.
(24 October 2008)