OPEC To Cut By 4.2 Million Barrels A Day, More Than Twice Expectation

By Douglas A. McIntyre Published Dec 17, 10:55AM EST

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Tx00338coilwellgusherodessatexasp_2 So much for deflation worries, and so much for an early end to the recession.

OPEC shocked the market by saying it will cut production by 4.2 million a day. Most comments from the cartel and analysts said the drop was supposed to be 2 million barrels. After a further look, that 4.2 million barrel per day number may be misleading.

A number of OPEC members, particularly Venezuela and Iran, have saidthat they cannot balance their national budgets. The organization couldhave cut modestly now and watched for the effect on prices. If thecartel saw no "improvement" in what it could charge, it could dropsupply again early next year.

OPEC has clearly decided to preempt the issue and take daily outputdown sharply. Russia is likely to follow and the impact ofpricing will be made even greater, although it appears their output is already down. The large increase in oil inventories rather than the expected decrease shown this morning is also counteracting the headline data.

If the headline data was the only data, then you might have expectedto see $60 by the end of the year and to $70 by the end of winter. Butif you look further into the cuts, this cut in production is from theSeptember levels. If that is true, then the additional OPEC productioncuts would look more like 2.2 million barrels per day starting inJanuary. That is why oil futures have whipped around and are back innegative territory around the $43.00 per barrel price.

Source: CNBC

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.