OPEC's Dilemma: When and How to Cut Production

Excerpt from our One Page Annotated Wall Street Journal Summary:

A Slippery Debate Stirs in OPEC

Summary: The current slide in oil prices has OPEC ministers bickering over if and when to cut output in an effort to shore up tumbling prices -- and who should bear the pain of doing so. Supply cutbacks had originally been slated for early next year, but if prices continue to slide, OPEC could be forced to take immediate action. Points of contention: 1) What price to defend -- some ministers say $55/barrel; others say it depends on the speed of the drop. 2) Who cuts first, and how much each nations cuts -- no one likes to lose market share, and it is a question of how much pain they can bear before they are forced to settle their differences. The kingpin in the equation is Saudi Arabia, and its oil minister Ali Naimi. The kingdom accounts for close to 30% of OPEC output, making Naimi the cartel's de facto leader. On Tuesday, with prices around $61, Naimi offered a clue as to his stance, telling reporters, "The oil industry is convinced that this price is reasonable." WSJ bottom line: "Saudi Arabia has let its output fall this year in line with demand for its oil. But OPEC officials acknowledge that there is a limit to how much the Saudis will cut supply unilaterally. When the kingdom reaches its pain threshold, OPEC officials say, Mr. Naimi will insist others also reduce output. That is likely to be when the fighting erupts in earnest." Full WSJ article >
Related links: Bulls Versus Bears on the Oil Outlook • As Oil Prices Slide the Pundits are Playing it Slick • OPEC Ministers Trying to Gauge How Far Oil Can Slip • Related ETFs: Oil Service HOLDRs ETF (OIH) invests in oil-service companies such as drillers and well-site managers. United States Oil Fund ETF (USO) invests in crude oil futures, gasoline, and other petroleum-based fuels.

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[Quaker]

"WSJ bottom line: "Saudi Arabia has let its output fall this year in line with demand for its oil."

As usual, WSJ shows a stunning lack of understanding of Saudi Arabia and the oil markets in general.