The 87% solution
Sometimes cutting seems to be the hardest word. OPEC bows to global economic pressure and the Kingdom of Saudi Arabia. The cartel, in the face of a growing global economic slowdown, opted not to cut production at their meeting yesterday. Instead the focus was on OPEC's compliance to the previous 4 million barrels or so of cuts. In fact compliance to current cuts is running close to 85%, a record for the notorious cheaters. So I guess the solution to OPEC and all their problems is to get compliance near 87%.
As I wrote last week OPEC members were counting on Saudi Arabia to save them from themselves. The talk of 85% compliance to their cuts seemed less impressive when you remember that the Saudi’s were the ones doing the biggest percentage of the cut. OPEC members compliance was good but only because the demand for their product wasn’t that great in the first place. The EIA expects that OPEC’s oil export revenues will fall by a whopping 61% this year. That kind of income drop is causing stress and it is clear that if OPEC was going to cut back on production it was not going to be the Saudis that were doing the cutting. Oh sure the cartel said they were not cutting because they were concerned about the global economy. But the real reason is that the Saudis decided that enough was enough.
OPEC got the full court press from the Obama administration. And Reuter’s news wanted to give them credit. Now if anyone believes that the reason OPEC did not cut production is because of the Obama administration they are not paying attention. The reason is because the Saudis were tired of carrying the load and the dollar firmed up. The OPEC Secretary General was calling for cut just days ago. It was not the Obama administration but the Saudis that gave him a new tone, the kind of tone that says that the Saudis rule the roost in the OPEC cartel. He may be Secretary General but if OPEC is going to be a force it is the Saudis that call the shots.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
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