topshelf

OPEC and Production Cuts: Why Now's the Time to Buy

First let me paste a clip from one of the many articles on the OPEC Meeting. Take note of the wording, the hint, of something more than a Cut in Supply being possible. I'll asterisk the words:

TEHRAN (AFP) — OPEC will decide on a "major" output cut next month if the oil market is deemed to be deteriorating, the cartel's secretary general Abdalla Salem El-Badri said on Monday.

"If we see the market is deteriorating we will make ***a major action*** in Algeria *and anywhere if necessary*," he told reporters in Iran.

El-Badri, who is attending an oil and gas seminar in Tehran, said earlier that the Organization of Petroleum Exporting Countries will cut production by a "good amount" when it meets in December to tackle tumbling prices.

"If there is ***an action** that OPEC can take, ***it will not hesitate*** to stabilize the market," he said in English.

"We can't say how much the output cut will be in December but for sure there will be an action because we're seeing that stocks are high," he said. "I cannot tell you (the size of the cut) but it will be a good amount."

"The price of 75 USD is reasonable but our outlook is for between 70 to 90 USD per barrel," El-Badri said.

The cartel's secretary general said non-OPEC oil producers "Mexico and Norway have already declined the production naturally by themselves," adding that OPEC would seek to convince Russia to join the efforts as well.

"After Algeria meeting myself or the head of the conference will go to Moscow to try make them participate."
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my 2 cents:

Consider that Saudi is the friendliest to the US/West. IMHO Saudi sent a Hint of the price needed to make the Cut on the Low side.
Saudi gave the West a Marker, a Target Price, of $75.
The closer to $75 that Crude gets to in a mere 2 weeks, Dec 17th, the less the Cut of Supply. Should Crude stay at the $50 Range, or worse be below $50 by Dec 17th, then the Hawks of OPEC get their way, and OPEC makes a stunning Cut and/or an "action".

If you read the wording carefully, you can see OPEC gave a delicately worded Caution. A Cut is definite. We don't know how much. What is "an action"? Is that something more than a Cut, something like a Halt?

There are a few more important items in play at this same time. OPEC has an opportunity here to get an increase in their Power. Russia may consider increased cooperation with OPEC, paving the way an eventual joining....but only if they see the way this dilemma is handled turn out to work. Norway and Mexico are also watching.

In another way of looking at this, the coming decision is being placed in the West's Court. OPEC passed the "Ball" to the West, and said, [my wording in a brass tacks manner], "if you don't increase the price of Crude, we will make a huge Cut. We in Saudi will try to make $75 acceptable to the others, and we in Saudi need $75 also. Even with $75 we will have some countries saying they need a higher price. So its up to you. If we don't see an increase at or heading towards $75, we're going to shock you... your call'