Despite hopes and warnings by those in the oil industry and analysts, OPEC, after meeting on Thursday, decided it is not going to do anything to remedy falling oil prices.
Prior to the OPEC meeting on Thursday in Vienna, Citigroup commodities analysts, which included Seth Kleinman, Eric Lee, Christopher Main, Edward Morse and Anthony Yuen, warned that OPEC needed to agree to cut production to prevent oil prices from plummeting further. Oil has fallen to a 4 year low of around $74, and oil producers are feeling the pain.
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According to CNBC, the Citigroup Analysts released a statement on Monday, “The reality of shale revolution in the U.S., long scoffed at within OPEC as a high cost folly, is now hitting the producer group where it hurts, while oil demand growth and underperformed significantly… the shale revolution (has issued) the producer group with a wake up call against a weak demand backdrop.”
Well, frankly my dear Citigroup, OPEC doesn’t give a damn.
Bloomberg reported on Thursday that OPEC decided to take no action to stem production even as Venezuela, member of the 12 nations that make up OPEC has suffered terribly as its oil futures have plummeted. Not surprisingly, oil tanked on the news, with Brent Crude dropping 8.4% in London after losing 35% so far this year. OPEC maintained its 30 million barrels a day limit, and Bloomberg reports it even exceeded the limit by a million barrels last month. Could it be that OPEC wants to flood the world with cheap oil as it feels threatened by the North American oil boom? Well, Jim Cramer on Mad Money expressed that view last week, and sadly, it now seems bloody likely.
SocGen’s Mike Wittner seems to agree. According to Seekingalpha, he called the decision “unambiguously bearish, ” one that will “reverberate for years.” He thinks OPEC is saying, “bring on lower prices and let the market do its job of throttling U.S. shale growth.”