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OPEC Cuts Oil Production Amid falling Oil Prices

by Albert Milliron | October 24, 2008 at 08:27 am

257 views | 18 Recommendations | 11 comments

OPEC has agreed to cut production due to rapidly falling oil prices. Airlines and other Oil dependent companies rushed to buy call options to lock in the current prices.

A call option means buyers can continue to buy oil at the current prices even though prices rise. An example of this was South West Airlines who had locked in prices for their company before the rise up to near 150 dollars a barrel. By doing so they were able to continue offering cheaper ticket prices while other airline had to increase ticket prices as oil continued to rise.

Here we see that OPEC can alter production levels such that Americans are defendant upon them. Recently the topic of Oil independence has moved off of the Presidential topics list. One of the major problems with lowering oil prices is that folks stop focusing on getting America and other countries off of energy independence.

This remains a national security issue and really should continue to be a topic for discussion even with lower prices.

The Organization of Petroleum Exporting Countries cut oil production targets for the first time in almost two years as the group battles to slow a collapse in prices.

OPEC decided to lower supply by 1.5 million barrels a day from November, oil ministers said today at the end of a meeting at the group's Vienna's headquarters. The reduction will be from the existing quota for 11 members of 28.8 million barrels a day.

``Demand is significantly less than what is being supplied, that is the reason the cut was taken,'' Saudi Arabian Oil Minister Ali al-Naimi said after the meeting. Crude oil has tumbled 57 percent from a July 11 record of $147.27 a barrel as the financial market crisis spreads, job cuts increase and fuel consumption slows. Prices fell as much as 7.7 percent today.

``OPEC has offered the market all the ammunition they had,'' said Robert Laughlin, senior broker at MF Global Ltd. in London. ``With the bearish economic outlook and manufacturing in freefall this accord is not good enough.''

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René

flagged this story as Good Stuff

at 08:40 on October 24th, 2008

politisite, I like this story. It's good stuff. Gotta laugh at that Saudi oil minister's comment. and don't think energy independence is 'off-the-table' either.

Albert Milliron

at 09:13 on October 24th, 2008

I hope you are right Rene. America really needs to continue focusing on Oil Independence. I just noticed that the candidates have been talking about it less often and are back to attacking each other.

René

at 09:22 on October 24th, 2008

I think that is a response to so many supporters of each attacking each other, particularly on the net. I've never seen so much vitriol.

Amy Judd

flagged this story as Good Stuff

at 15:25 on October 24th, 2008

politisite, good story

Fairbanks

flagged this story as Good Stuff

at 15:31 on October 24th, 2008

More than discussion. This may be the chance to set up viable alternatives, the chance we (Washington DC) wasted 30 years ago.

. . . should continue to be a topic for discussion

Albert Milliron

at 17:11 on October 24th, 2008

I agree. The problem with our country and politicians is they don't consider the future and always deal with whatever crisis is in front of them. The chatter from congress has dimmed compared to several weeks ago. I wish they could develop a policy and stick to it. It seems like our folks are on whatever subject will get them elected... not what is the needs for good policy.

RayBanBro66

flagged this story as Good Stuff

at 15:59 on October 24th, 2008

politisite, I like this story. It's good stuff. ...especially agree with your last statement (should continue to be a topic for discussion even with lower prices)

Albert Milliron

at 17:07 on October 24th, 2008

Thank You for your comment

Ant00n

at 07:12 on October 25th, 2008

Headquarters of OPEC, Vienna. As oil and it's price has an ever growing influence on the economy and our lives, it amazed me that such a powerful organisation has it's headquarters in such a small (and infact plain ugly) building.

Ant00n has contributed a photo to this story.