Man, I would not want to be a cat anywhere near (T)Hugo Chavez right about now. Cats must be running for cover whenever they see him coming for fear of Chavez taking a kick at them. Not only is his UN Security Council adventure exploding in his face, but oil prices continue to drop even though he "won" production cut promises from OPEC. Why are prices still falling? Simple: analysts do not believe OPEC will actually make the cuts they say they will. Experts know that OPEC members routinely cheat on quotas.
The pledge to curb output by 1.2 million barrels a day, announced after an emergency meeting in Doha, Qatar, came after oil prices had fallen by roughly $20 since a mid-July peak above $78 a barrel. Some oil-cartel members warned output could be trimmed further when the group meets in December.
But many analysts believe the Organization of Petroleum Exporting Countries will have difficulty enforcing the production cut in its entirety because oil prices are still twice as high as they were just three years ago.
"It's clear there will be some production cutbacks. But is it going to be 1.2 million barrels? That's probably unlikely," said Andrew Lebow, a broker at Man Financial.
OPEC has a history of "cheating," or producing above its official quota, when prices are high and analysts are therefore reluctant to accept the cartel's intentions at face value.
Moreover, many analysts see OPEC's action as proof that the group responsible for supplying more than a third of the world's oil is increasingly worried about slowing demand growth and burgeoning supplies from non-OPEC sources.
"What brought us to this point — where OPEC needs to reduce production by 1 million barrels a day — is bearish for prices," James Cordier, president of Liberty Trading in Tampa, Fla. "The fact is, demand has fallen or is about to fall more and OPEC is trying to catch this by producing less."
Light sweet crude for November delivery on the New York Mercantile Exchange fell $1.68 to settle at $56.82 a barrel. The last time front-month futures settled below $57 was Nov. 29, 2005.
In London, Brent crude for December delivery on the ICE Futures exchange settled at $59.68 a barrel, a decline of $1.19.
Oil prices have tumbled since summer due to rising global supplies, a weaker-than-anticipated hurricane season and expectations for slower economic growth. The OPEC production cut is intended to halt the decline.
"The question now is whether OPEC members will comply with the new quotas or whether history will repeat itself and OPEC members over-produce," Global Insight analyst Simon Wardell said in a research note. "The markets appear to be betting on the latter."
This is going to cause Chavez's train wreck even worse. He has badly overextended his nation trying to buy the seat on the UNSC. He now has to pay all those bribes with much diminished income from oil sales. He's in trouble.
UPDATE: And still more bad news for (T)Hugo all rounded up and wrapped in a neat package at Fausta's place.