Goldman Sachs wasn’t the only group surprised by the sudden bursting of the Oil BubbleTM. OPEC is going batshit, and we don’t mean that in a good way.
The problem at this point, as is usually the case with supply side controls, many of the members will be strongly incentivized to cheat on any cuts. With November NYMEX crude futures trading at just over $58 $57 $56 $55 $54, several petrol economies are looking at deficit budgets. This is extremely problematic for countries that have leveraged their in-ground deposits to feed spending binges. We aren’t naming any names, but several of the more aggressive spenders over the last five years were already having fiscal issues with oil at $65. Continuing slips would be a problem all by themselves, but production cuts on top of those will be even worse.
It is ironic that just when the cohesiveness of the cartel is most needed it is under the greatest pressure. This is one of the reasons it has been remarkable that OPEC, with so many members, has lasted even this long. Now, panicky behavior on the part of the largest extraction economies is to be expected. Figuring that this is lining up to be an outstanding show, we have several bids in on eBay for old-time theater popcorn poppers.
OPEC Plans to Meet This Month to Discuss Output Cut [Bloomberg]
Related: The OPEC Sandbox
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Let them eat sand.
does it seem weird that the market bottoms at 1pm exactly? this isn’t the first day that its done that.
GS: Hey, it’s time we sat down and got back on track re worldwide manipulation, cutting supply, price gouging etc. Know you have a lot on your plate right now but give us a shout – we can’t actually dine on this stuff, and the oil won’t stay easily up our asses!
Your Brothers at O.P.E.C.
This is just plain good for American hegemony. And it won’t hurt the Chinese much either.
If American businesses are smart (which they probably are not), they will start hedging their commodities exposure as the prices fall.
After all of the calls for the demise of the American system on the backs of the overextended American consumer, we see that the US has successfully exported its problems. The European banks bought our subprime debt, the Asians provided capital to our financial system, and despite paying out a few tens of billions to the oil states this year, they’ve become hooked on expensive oil and will now suffer tremendously.
Looks like we’ll be the first to come out of this. With any luck, we’ll recapitalize our major industries and be a lot more sensible the next time around – at least until foreigners are willing to lend us money on worthless collateral again…
I love those pocorn poppers! I wonder what the middle east would be like with instability? oh wait…
Hey Iran, America here. You know how you guys were providing subsidies for your citizens gasoline. Then you decided to set a budget with oil in the high eighties. Have fun trying to tell your population they have to pay market prices for oil because you are broke. Hope you like our invisible hand up your ass.
@6 I get the impression that they may find the invisible hand appealing.
@1
“Let them eat sand.”
Is that where they got the name sandwich from?
LET THEM FRY IN IT, FUCKIN FRYBABIES
@4 Given the non-existence of U.S. public transport, the U.S. is much more car dependent than Europe, so long term you have a bigger problem when the oil runs out. Per capita the US consumes double the oil that Europe does. Regarding recapitalization of your major industries (services/banking), you have to fund this domestically because international investors have been burnt by the falling dollar due to a large trade deficit and out of control military spending. But why is the dollar so strong now, are banks buying dollars to replace vaporised toxic mortgage dollar assets?
@10 go back to answering the phone
@10 – There’s no messing with capitalism US style buddy, do not let no pesky Ruskies or goat herding Arabs or armies of Chinese slaves make you think otherwise. Been there, lived there, seen them, done that — there’s no equivalent to the spirit of the American people. That’s why the USD is getting stronger.
Or, if you are an cynical bastard:
The dollar is strong ’cause the whole world is buying our T-bills. Guess why that is – cause they know commenter #4 is right.
Now answer that freakin’ phone.
Praise allah the arabs are just as stupid and wasteful as Americans, otherwise they might own the whole country by now.
Oh no poor mid east now maybe some of that useless dresswearing clowns will actually have to go get a job. CostCo is hiring bitches!
still need to invest in public transport and raise gas taxes to reduce the amount of money going to the arabs when things pick up again
@10 – buying USD due to the spirit of the American people… who does that?? American expats I guess…
@4 is wrong on 3 counts, US hegemony is finished due to lack of credibility, the US does have a long term problem due to its oil addiction, and foreigners won’t be suckered to send their cash to the US again