Oil Petroleum

Topics: Petroleum, OPEC, Futures contract Pages: 4 (1197 words) Published: May 29, 2013
Case Study: Oil Production 

OPEC's oil shock OPEC has surprised the markets with an output cut of 900,000 barrels per day, to take effect at the beginning of November. Observers had expected the oil producers' cartel to hold its quota steady because production in Iraq has been hit by sabotage. Before the regular meeting of the Organisation of Petroleum exporting Countries (OPEC) in Vienna on Wednesday September 24th, most of the drama was provided by Hugo Chavez, the Venezuelan president, who opined that the Iraq representative should not have been at the get-together because he was an illegitimate stooge of American occupiers. If that is so, Ibrahim Bahr ai-Uioum behaved very oddly. His bullish predictions that lraq could produce at least 3.5million barrels per day (bpd) by2005 seem to have been among the factors that persuaded the ten members of OPEC's quota system to approve a surprise production cut of 900,000 bpd, to 24.5m bpd. The effect of the cut was to send oil prices sharply higher. Equities in America retreated on fears that a higher oil price could stymie the incipient economic recovery: the Dow Jones lndustri.al Average of 30 leading shares fell by 1.57% that day. In their official communique, OPECs oil ministers pointed to their expectation of a 'contra-seasonal stock build-up' at the end of this year and the beginning of next year. Normally, oil stocks decline over the winter in the northern hemisphere, thanks to heavy use of heating oil. But this year, demand for oil, according to OPEC, will grow merely at its 'normal, seasonal' level, despite an improving world economy. OPEC expects supply to grow faster than demand thanks to continued increases in production from Iraq and non-OPEC countries (of which Russia, the world's second-biggest oil exporter, is the most important). OPEC expects this supply-demand mismatch to translate into a stock increase of 600,000 bpd in the final quarter of this year. This contrasts with an estimated stock...
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