You read it here first. OPEC will have to cut its output by another two million to three million barrels a day once the new year comes.
The oil consuming world has slapped the cartel by continuing to drop prices after OPEC’s big cut last week.. Today, crude traded down a stunning 9% to below $36. According to MarketWatch, Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19, the Energy Information Administration reported.
Demand is so low, it is hardly making a dent in inventories.
The other piece of news that OPEC must find dismaying is the rapid unraveling of the Chinese economy. The central bank there has cut interest rates five times in three months. Export growth rates are slowing, and there is a concern that GDP growth could drop below 5% this year. Sales of key goods like automobiles are falling for the first time in years.
OPEC members Iran and Venezuela insist that crude has to be above $70 a barrel for them to balance their budgets. Russia is also up against severe economic pressures as money moving into the country’s economy is shrinking rapidly due to the drop in oil prices. This is beginning to undermine political stability.
OPEC can’t afford oil to stay at $36 or anywhere near that.
Douglas A. McIntyre